The corporate tax cuts fueled a trillion dollars in share buybacks to prop up the profits of tired corporations facing the last stage of a 10-year growth cycle. This largely benefited the already rich and the C-Suite executive suites. In the end it will fuel the largest peacetime budget deficits ever. Full stop.
24
This is the Brownback Kansas tax policy experiment applied on a national level. And so far it is having exactly the same result. Let's end this national experiment, just like Kansas voters did, before what happened to Kansas happens to all of us. It's time to repeal the 1% and corporate tax cut.
51
Dr. Krugman tells only half of the story. There is more bad news coming. Not only is the tax cut not producing investment, jobs, and wage growth. It's also raising the deficit, and no rising tide is going to lift all the boats. The U.S. will need to borrow more in a rising interest rate environment. Congress and Trump may be dealing with the double whammy of a deteriorating economy and gaping budget hole just in time for the next election. Perhaps enlightened voters will hold them accountable next time.
194
@Ken L
I'd like to agree, and the blowup of the deficit does show how hypocritical these people have been all along. But everything we've seen over the past decade says that deficits matter much less than legend would have it. Don't expect a comeuppance, no matter how well deserved.
81
@Paul Krugman first off I love seeing a columnist actually replying to comments. Second, there will be no comeuppance. Especially now that democrats control the house, the republicans are incredibly good at shifting blame. When this self inflicted deficit starts hurting the economy they will show that it was timed with democrats taking over, and nothing to do with what trump did in the 2 years leading up to that take over. And their followers will blindly believe them. Understanding this stuff takes more than 3 words, and three word slogans seems to be how they run campaigns these days.
14
@Paul Krugman - It's worse than that. In fact, one of our biggest problems is the utterly wrongheaded belief that federal deficits are bad for the economy when they are usually necessary (but not sufficient) to avoid economic disaster.
It's easy to see why. A moment's thought will show you that the federal deficit measures the net flow of money FROM the federal gov (which has an infinite supply thru the FED) TO people, businesses and state & local govs. So unless we have a large current account surplus (which we will probably never have), we need a federal deficit to supply money to a growing economy. Reasonable federal spending will facilitate production which will prevent excessive inflation which in the past has been caused by some factor (e.g. shortages) that prevents the economy from growing.
Let me end with the historical data I have repeated ad nauseam.
The federal government has balanced the budget, eliminated deficits for more than three years, and paid down the debt 10% or more in just six periods since 1776, bringing in enough revenue to cover all of its spending during 1817-21, 1823-36, 1852-57, 1867-73, 1880-93, and 1920-30. The debt was paid down 29%. 100%, 59%, 27%, 57%, and 38% respectively. A depression began in 1819, 1837, 1857, 1873, 1893 and 1929.
'The definition of insanity is doing the same thing over and over and expecting different results."
Also
"Those who do not learn from history are doomed to repeat it."
13
I will give a less sophisticated answer than those here. I have worked in corporate life for 40 years and achieved success at executive levels, I only day this lest you think I have sour grapes. I have no reason to say these things. When I started working companies believed that they were there to benefit the shareholders, the customers and their employees. In theory all came out ahead and there was commitment to each other. Back then execs earned about 40 times the average worker and at Christmas the first large corporation I worked for actually sent me a cooler filled with turkey and other goodies.for the holiday. Fast forward to now, the primary motivation of companies is share price because share price determines executive pay which is about 500 times the average employee. Tax cuts, like everything else, are used to increase executive pay not invest in equipment and people. Companies don't think long term anymore, they think money in the executives pocket and they only do what they have to do to stay reasonably competitive. The tax cuts were, as everyone now knows, only to stuff the pockets of the haves.
1390
@Susan: While it may seem that corporations have changed, in favor of short term thinking, they have always had a fiduciary duty to the shareholders (owners) to maximize their wealth.
I would argue that the environment (e.g., instant access to market data) has had a profound effect in focusing corporations on shorter term goals. Add to that the uncertainty caused by government policies changing without notice (e.g., tariffs), and I’m surprised businesses today are not frozen in their decision making.
11
@Susan "the primary motivation of companies is share price because share price determines executive pay" -- There's a huge generational social shift occurring in America. The US population is ageing, and more and more people are now living on investments rather than active earnings, and we're seeing a major transformation in stockholding practices in the US. The Boomer's investments have been made in large pension funds that are 'managed' -- in other words, the actual, legal stockholder (Granny) doesn't give a thought for how the company is run so long as her money manager produces a decent third quarter profit to fund her pension. In a sense, CEOs are accountable to stockholders only to the degree that stockholders care. The problem of "greedy CEOs" cannot be solved by only looking at ways to control CEOs. The deeper problem is how to control greedy stockholders who care more about their next round of golf before 5pm cocktails than the companies they theoretically "own."
35
@Susan
In my 35 years at three large corporations I observed the same . I started at DuPont which had a strong ethic to reward employees, the community. Suppliers, and customers. The company was also extraordinarily safety conscious emphasize worker and community safety. The company took the long view investing significantly in R&D and not just short term product fixes. They still may do much of this today, although since the merger with Dow, things may have changed.
The next two companies went through a slow, then rapid change as the 90s came to a close. Job cuts. Community events stopped. Safety was de-emphasized. Executive salaries rose. Only the share-holders mattered. All other constituents were off the radar screen. Since my retirement things have accelerated.
116
Krugman avoids talking about the individual tax cuts, which helped millions of Americans.
Yeah, as a self-employed American making over $38k you're paying 22% 15.3% = 37.3% of the next $60k dollars in taxes. Way more than corporations. Big help, those tax cuts were to individuals. It'll be even better when they expire in a few years, unlike the corporate tax cuts, which are permanent. Big help, indeed! But ignorance is bliss, eh?
4
Why not just give individual Americans the tax cut rather than lavish cuts on the ultra wealthy and corporations? The trickle down cuts have done nothing and will do nothing because trickle down is a sham
2
The individual tax cuts will only expire if the Democrats have their way.
The tax cut was Paul Ryan's signature achievement, right?
Sorry Paul, perhaps you should have spent more time reading up on economics than lifting weights in the gym.
16
This is the most worthwhile 3 minute read I've encountered this week. Despite a few squabbles (*), I have to thank Krugman for the spectacularly transparent explanation of recent economic policy folly by the US Government. Should be required reading for every elected and appointed official in the United States.
(*) Corporate homeporting might not have been the key to Ireland's prosperity, but at least coincidentally their annual wage has increased by 27% since 2000 while Switzerland's rose by 15%:
https://en.wikipedia.org/wiki/List_of_countries_by_average_wage (yeah, it's Wikipedia, but this isn't the American Economic Review, either).
11
President Trump's understanding of the economy is only exceeded by his understanding of the settings on his tanning booth.
9
According to Money*,
"In 2018 middle-income households—those earning $49,000 to $86,000—will see a tax cut of $930 on average, the Tax Policy Center found.
Those who make a bit more but might still plausibly be called middle class—families earning $86,000 to $149,000—will get back even more, with an average cut of $1,810.
.
.
.
The upshot: The number of taxpayers who need to laboriously itemize their expenses is expected to fall to about 19 million for 2018, from 47 million under the old rules, according to the Tax Policy Center.
.
.
.
One widely used perk that will disappear: the personal exemption, a $4,150 write-off each taxpayer has been able to claim for him or herself and each dependent. The good news: To offset that loss, lawmakers expanded another benefit available to parents, doubling the child tax credit to $2,000 and hiking the threshold at which it phases out to $200,000 from $75,000 for singles ($400,000 from $110,000 for couples).
Under the old rules the exemption acted like a deduction, reducing filers’ taxable income for each person claimed, while the credit, which takes its place, will cut filers’ bills dollar for dollar."
*************
http://time.com/money/5222840/tax-day-tax-law-changes/
3
If you’re going to spend tax dollars to create jobs, then spend tax dollars to create jobs. If you instead give tax dollars back to the wealthy, they’ll say ‘thanks very much’ and buy a bottle of Romanee Conti for $15,000, or a third home for $5 million; or a Hockney for $90 million.
That’s really not all that big a secret, is it? Heck, I bet even our addlepated President - who still seems to think China pays those new tariffs, not American businesses and consumers, or at least says he thinks so — fully understands that tax breaks for the rich buy more luxe and not much else; while tax breaks for corporations buy more after-tax profits, dividends, stock buybacks and executive bonuses.
49
Why?
Because it was a deceitful windfall for the .001% (including Trump and his family) and for big business--that's why!
Stimulating the economy or helping the "little people" were just deceitful lies to dupe the masses into swallowing a poison pill for most of us.
14
Photographs of a sneering, threatening and posturing fool President are featured in every article and commentary that features his name, even if only once. It has become a serious turnoff. Can't NYT editors do any better, be more interesting and creative!?
Brilliant and useful commentary by Krugman. Do more please. So much about these accounting games remains opaque.
8
..Lowering corporate tax rates would not result in any additional hiring, growth in wages or output. The entire incidence of a corporate income tax falls on the owners of the corporation. If a corporate income tax is a percentage of pretax income, none of the corporate income tax can ever be passed on to employees or customers. That is because any hiring, wage or price decision that maximizes pretax profits would also maximize after-tax profits.
If a profit-maximizing rational corporation is charging $10 for an item that is because it is more profitable to charge $10 than $9.99 or $10.01 taking into account market demand and competitive pressures. Thus, $10 is the price at which pretax profits are maximized. If a corporate income tax is levied as a percent of pretax profits, $10 is still the price that maximizes both pretax and after-tax profits. Thus, the tax can not cause any change in the price and is not passed on to consumers. The same applies to a corporation that is paying a wage that maximized its pretax profits, which is also the wage that maximizes its after-tax profits. Likewise, the number of employees and level of output that maximizes pretax profits is also the number of employees that maximize after-tax profits.
The falsehood that corporations do not pay income taxes, but rather their customers and employees do, has been repeated many times by those who do not understand economics and by some who epitomize Upton" …"
https://seekingalpha.com/article/4067359
3
When Ronald Reagan was elected the snake oil he was selling (a rising tide lifts all boats etc.) sounded new, original and fresh..it wasn't. Just the generation of Americans ripe to be conned by an old Republican playbook was. You would think that almost 40 years of these duplicitous lies about tax cuts for the wealthy being good for working class/middle class Americans would have been realized by now..but it hasn't. Just shows you the power of right-wing media and the propaganda they shovel out on a daily basis.
13
What is the difference between American oligarch Trump and Russian oligarchs? Sure, murder would be at the top of the hit parade, but otherwise, Trump and American oligarchs have their hands in the public treasury. The "public good" is the same as religion. - pablum.
4
I believe that the very cynicism that Donald Trump plays to with his populist talk is the very reason the tax cut is so unpopular. Giving a couple trillion dollars to a bunch of billionaires and big corporations is unpopular on the face of it. That's how it looks and that's how it has been playing in middle class America.
2
Dr. Krugman, your argument would seem to imply that the Kennedy-Johnson tax cuts of 1964 were also misconceived. Do you think this is the case? Or was there something different about those tax cuts? Thank you.
4
The flip side of this is to put the money into the hands of people who actually spend it: the poorest of the poor, working class, and middle class people. It's not rocket science, folks. It's just common sense. We can't spend ("invest") what we don't have when the fat cats and the multi-nationals have 80% of it! We make it for them and we don't get a fair share of it. Period.
39
Could the reason that the tax cuts didn't affect corporation decisions be because they were paying so little taxes in the first place? Krugman talks about a cut from 35% to 22%, but that's sheer fantasy. You know why. It's because of loopholes.
A good parameter to look at is total corporate taxes actually paid divided by GDP because neither of these figures can be fudged by corporations. Here are the figures from BEFORE the tax cut. If you look at developed countries, you will see that Norway has the highest value at 12.5%. The US is tied with Turkey for the lowest at 1.8%. If you look at all the countries touted by conservatives as low tax countries such as Ireland or Canada, you will see that their corporate taxes as a percentage of GDP are higher. http://economix.blogs.nytimes.com/2011/05/31/are-taxes-in-the-u-s-high-or-low/
In addition, during the Great Prosperity, 1946 - 1973, this figure was about 3 times higher than today
7
Let's see if we can understand WHY tax cuts for the Rich or more generally, income and wealth inequality, is bad for the economy. Economists have a concept called the velocity of money. It is the frequency, how often, that money changes hands in domestic commerce.
Here's an example. Suppose the government gives Scrooge McDuck a Billion for advice on the comic book market, If Scrooge puts the bucks in his basement, and forgets about it, that doesn't help the economy at all. That Billion has a velocity of 0. Also, if Scrooge loses a financial bet to Daddy Warbucks, and the Billion moves from Scrooge's basement to Daddy's, that is a change, but the velocity does not change because it is not a useful change. It doesn't affect commerce.
Money going to the Rich has a lower velocity than money going to the non-rich. The Rich spend a lower percentage of their money. What's a guy or gal who already has so many houses he can't remember how many & an elevator for his horse gonna spend his money on? The answer is he is going to use it to speculate.There is a correlation between inequality & financial speculation. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1661746 Speculation is bad for the economy. That money has a very low velocity. AND it increases risk which we have seen in 2008 ain't a good thing.
Since 2007, the velocity of money has plunged. https://fredblog.stlouisfed.org/2016/04/a-plodding-dollar-the-recent-decrease-in-the-velocity-of-money/
10
"the vast sums corporations have supposedly invested in Ireland have yielded remarkably few jobs and remarkably little income for the Irish themselves — because most of that huge investment in Ireland is nothing more than an accounting fiction."
Exactly , Trickle Down Economics invented by Reagan`s budget director did not work as he admitted a few years later.
Fool me once shame on you. Fool me 3 times shame on the Republican voters & their Wall St manipulators/crooks.
America , you are making the rest of the world wonder if you really are better than the Trump-Kushner crime family and their abettors.
6
Corrected: Until the Reagan era, conservatives of both parties didn't like tax-cuts because they were afraid of deficits, after the huge deficit spending in WWII. So during the entire Eisenhower administration the top rate stayed at 91%, on over $2-3 million in 2016 dollars (mostly over $200,000 then). And in the 1940s, the top 0.01% paid close to 60% in federal income tax, which dropped all the way to just 22% by 2005 https://upload.wikimedia.org/wikipedia/commons/e/e8/US_high-income_effective_tax_rates.png with Bush tax-cut & treating $billion "carried interest" as capital gain to be taxed at 15%.
In MS many poor folks pay sales tax at 12%! Sales taxes & payroll tax are highly regressive. No matter how much you make you pay no payroll tax on over $128K in 2017. And the bottom 20% pays 7 (seven) times more as a share of their incomes in sales taxes than the top 1% does!
We should keep pushing to cut payroll tax on the first say, $20K, 1% on first $10K & 2% on the second $10K. Lift the cap but cut it again to 1% beyond say, $150K to be less unpalatable to the rich.
I would also say have one other top marginal rate of 50%, not on $2-3 million, but on say over $15 million. No more than the top 0.05% households would pay more. At this income level, incomes from all sources should pay at that 50%, not at 23.8%. This would raise revenue by hundreds of $billions annually, I think.
1
The chance that Republicans will ever admit their mistakes is zero. They will always try to blame Democrats, and when that fails, brown people, gay people, or some scary boogeyman in another part of the world (who will likely be brown also). The entire conservative movement, and I mean the entire movement, is one big con. This article says it all: https://thebaffler.com/salvos/the-long-con. The only chance for America to regain its sanity is for the rest of us to unite and vote Democrat as a bloc consistently for the next couple of decades. No third-party candidates, no intra-party warfare, no apathy---sustained support of an increasingly liberal Democratic Party at all levels of government. We need to do to the GOP nationally what has been done to them in California--make them a permanent minority.
5
I knew what Republicans wanted to do. I knew about the oath they signed to Grover Norquist and Americans for Progress to never raise taxes (ridiculous and should be unconstitutional). But I was still shocked when I saw that the tax bill sent so much money up the income chain and so little to the middle class. The economic wealth gap was already so enormous and still our representatives (well not mine, but they should be for "we the people) voted on this obscene tax bill. I agree that Republicans economics is nonsense and I do not understand why fiscal conservatism has such an overblown reputation (not borne out by data). I am hopeful that having elected some far left folks to the House we can pull some fiscal policy further to the left and shock everyone by making America humane again (without going broke). I view all this from the cheap seats. I even wrote about it. https://www.thearmchairobserver.com/why-republicans-good-for-economy/
(Sorry that the url says the opposite of the article.)
4
There was a day in 1991 when Donald Trump was rational and understood why high tax rates on the wealthy were good for the economy, not bad.
"The incentive to high income people to invest [eg. in housing developments] was taken away when interest rates came down."
https://www.youtube.com/watch?v=Rksd80-FCAw
2
Paul is not stating all the facts. Apple, Facebook, google have over 100K job postings. This was due to repatriation of taxes. All of those CEO's are Democrats. Lowering taxes is always good. The Fed Govt wastes money, that is a fact. A middle class family needs the extra money. NOT the Federal Govt.
3
"it’s difficult to get politicians to understand something when their campaign contributions depend on their not understanding it." Paraphrasing a saying of Upton Sinclair that I've had on my refrigerator for many years. 'Twas ever thus; right as usual Dr. K.
6
Jobs are created when a business grows. A business grows when demand for its product exceeds the production capability of the current staff. If you really want to get picky, the additional demand also has to cover the increased cost of production (a factory isn't going to add a third shift if demand is only slightly more than two shifts can produce). This is true from extraction industries all the way to retail.
High taxes can restrict growth if they reduce a business ability to build a cash reserve to the point that it can't invest in growth - but that hasn't been the case in the US since the seventies, if it ever was the case.
9
"Unfortunately, it’s difficult to get politicians to understand something when their campaign contributions depend on their not understanding it."
Upton Sinclair would demand royalties but appreciate the sentiment.
5
America is really kind of a dark comedy. Warren Buffet, one of the wealthiest individuals in the world, has been voicing his support for increasing taxes on the wealthiest for years. He's not the only one, either. In the wake of the 2008 crash, a group of millionaires and billionaires actually voiced public support for raising taxes on capital gains and high incomes to help the US get out the budget problems resulting from the crash.
But somehow, this country always has enough people whose annual household income is about $50-60k voting to give Warren Buffet more money at their own expense and the expense of their children and grandchildren. It is really kind of mind-blowing, and Warren Buffet's bemused reaction is actually kind of hilarious.
7
The Republican Santa Claus provides tax cuts. The Democratic Santa Claus increases spending. Nobody wants the Grinch of austerity and lower debt.
1
Even if it were true that giving the big corporations more profit money by lowering their taxes 14% would provide new money for investments, it still was unnecessary because the corporations had billions in cash and interest rates have been extremely low.
5
No. Trump’s tax cut has had a huge, huge impact.
On the deficit.
12
While the economic analysis is interesting, there's also the optics which is what most of us react to: Trump and the Republicans kept telling us that there was going to be money in EVERYONE's pocket, but that was a lie. Once more it's apparent, as a number of commenters have written here, that the Republican donor class is rewarded, but the vast majority, get nothing (or so little as to be negligible).
6
My conservative friends argue that the increased deficit resulting from the tax cut is due to spending, not reduced income to the government. I am a retired physician, not an economist. My brief reading of the statistics is that the tax cut has so far NOT had a negative effect on tax receipts. As tax cuts are blamed by the left for increasing deficits, it has always seemed to me that this MUST mean reduced tax receipts, because the cut gives it back to the wealthy. Your clarification please. Thanks.
@ Jonathon: As it happens, I've been entering data from the Monthly Treasury Statements for the past four years into a spreadsheet. So I'll answer from what the data tells me. But first, some background: Nominal Revenues almost always reach new records whenever the economy is expanding. We expect that as GDP grows, total Federal Revenues should at least keep pace, as businesses employ more people and everyone pays more taxes. In FY2018 (which ended in September), Total Federal Revenues indeed grew to a new record of $3328.7 B. But the increase was less than $14 B more than FY2017. $14 B is little more than a rounding error in a $20205 B economy and it is similar in size to revenues received from tariffs imposed in September (which are not sustainable). As a % of GDP, Revenues fell from 17.2% to less than 16.5%. More significantly, most of this fall took place from May to September, after pre-tax cut receipts from 2017 were recorded in April. Nominal Income Tax receipts were down over the 6 month period May to October, which foreshadows a large drop as % of GDP as FY2019 unfolds. Surprisingly, nominal Payroll Tax receipts were also down over the same period, even though more people are employed and wages are rising. It should be no surprise that nominal Corporate Tax receipts are down to 50% of 2015 levels and are at record lows as % of GDP. As recently as 2006, 4% of GDP was collected in Corporate Tax, but it was only 1% in FY2018 and headed for 0.75% in FY2019.
1
@Jonathan
The link has a reasonable explanation...essentially, tax receipts have remained level to slightly increasing. However, with the economic growth, the receipts should have increased more. Corporate receipts dropped over 100 billion
Plus, spending has increased, but that is on GOP socialism stuff such as throwing money at defense items needed or not...a bit reckless since the defense department can't absorb as much money as received. (the exception is the pay raise for troops...which was needed.)
https://www.bloomberg.com/opinion/articles/2018-09-14/tax-cuts-are-costing-the-u-s-treasury-money
1
business investments and job creation only respond to demand after all capacity has been used up. When corporate tax cuts dropped from the sky (without working for it), corporate executives know where they own pockets lie and where their loyalty is to, that is to give the money to shareholders.
QED.
4
It's a case of third time half charm.
The Reagan Tax cuts and holiday on overseas profits produced a lot of low-paying jobs, but otherwise companies bought-back stock and the rich got richer, while wages started to stagnate. We had a nice stock market crash.
It produced America's largest peacetime deficit. Daddy Bush raised taxes to keep us from going too deep in the red.
The Bush-Cheney tax cuts gave to the richer, and continued the wage stagnation for the poorer. Again, stock buy-backs were the rule. We had another stock market crash. The deficit with the war on op of it shot skyward. We had the Great Recession.
Trump's tax cuts provided for the richest, not much change among the poorest. More stock buy backs, over-inflating value, again, putting another crash on the horizon--if we aren't seeing signs already. The clock speeds up on this one. So beware.
The idea of the market was to help grow the country. However, there has been very little investment in the country. The stock market is not the country. Wall St. is not Main St.
Tax dollars are need to invest in and grow the country.
7
I am interested in the effect of overheating a booming economy. Specifically, rising deficits and rising inflation producing progressive rate hikes by the Fed. At some point housing will suffer along with other big ticket items as interest rates price folks out of buying, or qualifying for loans. Less housing and auto sales put a drag on economy. The bond market rallies as equities suffer. Are we locked into a cycle that will crimp growth in 2019 and 2020?
1
Huge fiscal deficit as proposed by Trump & Reagan increases demand for money thus forces Treasury Department to cover the gap by borrowing money in unprecedented amounts. Treasury sells bonds, flooding markets with bonds thus driving up interest rates (inverse correlation of bond prices v interest rate). Bond interest rates directly affect rates consumers pay for mortgage and personal loans.
It's not true that businesses don't consider what they pay in taxes. They do. Very much, in fact, at least most smaller businesses do.
But the fact remains that Trump inherited an economy that was already in healthy recovery mode - thanks to Obama - and just enjoyed watching the unemployment rate fall while wages have remained quite stagnant.
Too bad the Republicans refused to cooperate with Obama to borrow money when interest rates were almost at zero. That would've been great. Now they're going to borrow money at higher rates. But this makes their wealthy friends happy, because they're the ones lending the money and getting repaid at the ordinary taxpayer's expense.
They never wanted to lend money to the government at lower interest rates in the first place. And their tax cuts are just one big sham that benefit only the few.
4
The same people who say you have to give more money to wealthy people to make them work harder say that you have to take away money from the poor to make them work harder. Maybe the reverse is actually economically true?
5
There's no mention of the abnormally high employment rates. What is Paul Krugman's analysis of why employment is so buoyant now and even wages are rising as a result?
2
Another thing about regulations which I pointed to in my previous posts that it occurs to me to mention now that I see the article about who is going to be appointed to head the EPA is that our regulations for being a government employee required there be years of time in between working in government or industry and taking a job in government or industry. It also set rules that prohibited people who ran industry from ever holding a position of authority in regulation of industry. I think for the sake of appearances no one was ever allowed to cross that line.
The fact is regulation and tax codes when written with the idea of encouraging private business to fulfill public needs, seek to improve industry, create new jobs and invest in research works very well by simply making them pay higher taxes when they do not do it.
Even when they were fudging the system they were still employing X number of people in full time benefits paying jobs that paid taxes and supported local communities just to be sure of getting the tax breaks.
Dr. Krugman has short changed the GOP when he said "it’s difficult to get politicians to understand something when their campaign contributions depend on their not understanding it." I think they understand that but it is easier to lie to get campaign donations than to do anything else.
1
It seems to me that good faith analysts such as Krugman and others (including the CBO) have the unfortunate task of explaining bad faith actions of government. Analysis of why a given one of the Trump administration's policies may not be achieving the desired goals depends on the underlying assumptions about the goals of the Trump administration's policies.
Was the genuine goal of the Trump tax cut to help the middle class? With what I have observed of Trump's GOP, I do not take it as a given that they had any such goal. At BEST, the GOP might have believed that giving away enormous sums of money to obscenely wealthy people might, in some roundabout way, conceivably have some kind of benefit to the rest of the country. Still, that's like someone walking their dog all over your lawn on the grounds that the fertilizer will promote growth.
The true indicators of the tax plan's "goal" were that the benefits to large corporate entities and wealthy interests were: (1) given to them DIRECTLY (no "trickle down"); (2) permanent; (3) paid up front; and (4) given unconditionally. By contrast, benefits to those the GOP purports to care about are largely: (1) temporary; (2) indirect; and (3) dependent on contingencies (like stock buybacks vs. expansion; labor vs. automation; bonuses vs. raises; etc.).
And to add insult to injury, the GOP is even now searching for ways to make average citizens pay for this upward transfer of wealth by weakening safety nets.
5
The big corporations and the rich are already awash in cash. If they wanted to invest more to expand they already had the capital to do so. Hence, heaping more cash on them isn’t goung to change their plans. What would change their plans would be more money in the hands of middle and working class Americans which would increase demand and eventually re-establish the virtuous cycle which expanded prosperity for everyone for the several decades after WW II before the Republicans re-established the stranglehold of Organized Money, starting with the Reagan Administration. Cut the taxes of the rich and the result is that the rich have more money. Fancy that.
3
it will be interesting when folks complete their federal tax returns for 2018 - especially those of us in states that will be negatively impacted by the $10K maximum SALT (done to punish the east and west coast blue states) and see significant to modest tax increases.
it appears that many of us will see tax increases and others in the 1% will see, as has been proven, huge reductions compounded by corporate reductions fed into stock buybacks - benefiting the rich, once again.
trump's core, even when they see little if no tax relief won't care - they cannot turn on their leader - too much invested by them and the cognitive dissonance will prevail. so his core will continue to believe his 6500 lies and continue to chant at his rallies. and don't be surprised if at one of these rallies the ferver an roar of heil hitler will infest the crowd and before they even know it, they will be saluting and shouting it out. this is a natural extension of their attitudes and behaviors - perhaps extreme but very possible. let's wait and see if and when it happens if trump tamps it down or just smiles and basks in the admiration for the fuhrer.
@Sam Marcus
Middle Americans will hardly be disappointed. Their tax rates are lower, the standard deduction doubled and they'll now get an extra $1K off their taxes per child. For a family of 3 that's $6K right off the tax amount due.
@Sam Marcus, and , the members of the trump cult will not turn on him because as you say, by design, the limits on SALT will not affect them. Just we who live in the donor states. We were punished for being enlightened democratic majorities.
Is it a safe bet that it has something to do with pure unadulterated corruption and self-serving politics?
In a truly civilized society everyone of these people would be in jail. And the ever pouting idiot man-child running this country would be there for life.
Watching Trump run this country is like watching a know-nothing obnoxious spoiled brat tell Einstein what an idiot he is, and how wrong he is about everything.
5
That was edifying. Thank you.
The only thing I want to know is where is my tax cut? I don`t see it in my paycheck and am wondering what will happen come April 15; not too mention the Obama care penalty won`t expire until 2019. The little guy is doomed!
2
@pizza man
You don't see it in your paycheck because you haven't adjusted your withholding to reflect the tax cuts. You'll get any extra withholding back as a refund.
When the rich steal money they call it a "hoist". When the poor steal money they call it a "heist". Behavior is defined by power.
Great last line to this piece!
Isn’t this just sophomore level economics that Paul Ryan in his econowisdom should have known?
Silly me, I believed government was for the citizens.
1
Gary Cohn's big argument was that global corporations like Apple would bring the big piles of cash sitting overseas home and that would help to narrow the budget deficit. But you are saying this has not happened. Why not?
1
booming economy. lowest unemployment in a generation. More fake news from Mr. Krugman
1
Largest deficit ever. Zero wage growth. People too lazy to capitalize sentences.
9
Most of my working career was with a Belgian and then a French company making capital equipment. Our subsidiary office always just managed to break even, with almost all of what would have been our profits going to the home country office to pay for "services". Every international company plays the same accounting game.
4
Economic activity is still driven by demand. And for most Americans, there is less and less disposable income to create demand. Its all eaten up in healthcare, higher education, and on the coasts (where most of us are) by housing. Once those are paid for, who has money to spend on anything else?
Thus, with demand still stagnant, corporations do not need to expand or hire more workers. So, they buy back stock.
6
I don't think there is any question Krugman is onto something and that the tax cuts effects have been very questionable, particularly since they have been also met with higher rates, stronger dollar, tariff concerns and a global growth slowdown. What we know is that since 2000, our debt has built up to WWII levels (obviously many bad choices such as wars) and higher rates are a serious threat to a. government's credit standing; b. ability to respond to a real crisis; c. government programs.
So, although I agree with the thrust of this article, anybody who thinks what ails us is going away with the stroke of a pen is absurdly naive - because our country is big and complex. This administration is trying (once again, probably not smartly) to drive productivity and private investment up, both of which are critical to our competitiveness and sustainably higher wages. But, as our entitlement pie grows (and it will due to aging), we will have real challenges and need to come together as a country to solve them, as we did in WWII. Sticking our head in the sand, re-litigating past sins or re-configuring dangerous and silly ideologies and systems which have a very bad track record does not seem wise. What is wise, is acknowledging the scope of the issue, and working together to solve them.
The tax cuts given to the bigger wealthier businesses did not even trickle down to the employees in my area. There isn't even a drip. The first thing WalMart (biggest employer in my area) did was give small bonuses to employees who had been there over 10 years. Then, they took out 20 cashier aisles & put in 30 self-check aisles. Eliminating jobs. Many employees were cut down in hours (less than 39 per week), profit-sharing (buying stock) was reduced to just those who had 12 or more years with the store. Many employees are now using SNAP or Food stamps & many have second jobs as well as there spouses working. Tax Cuts were to appease trump's wealthy donors no the lower or middle class. What a joke this has been on our locals who voted for trump. Many are still waiting for their hourly wage to go up. Many still think they will be in better shape come tax time next year. Many will have to pay in because they reduced the amount they were having withheld from each check because trump told them they would be getting $4000 (?) more a year. Hah!
4
Wow, this is an awesome economic theory discovery with really broad policy implications. Businesses are indifferent to their tax rates in determining to make investments !! That means, instead of cutting taxes to 21%, we should be raising them to over 90%. This would create over $1 trillion dollars of additional tax revenue annually that can be used to pay teachers more, as well as all government workers more, and provide a living welfare wage to the poor. This will greatly increase the demand of goods and services, leading businesses to invest even more, earn more, pay all the profits in taxes, a virtuous beautiful cycle to riches for all!!!
3
The simple truth is that Keynes’ theories are correct that the economy is demand driven. The Republican Supply-side theory is just nonsense. There are numerous historical examples that reinforce Demand Theory. Republicans made Kansas a laboratory for Supply-side economics and it wrecked the economy.
2
I knew what Republicans wanted to do. I knew about the oath they signed to Grover Norquist and Americans for Progress to never raise taxes (ridiculous and should be unconstitutional). But I was still shocked when I saw that the tax bill sent so much money up the income chain and so little to the middle class. The economic wealth gap was already so enormous and still our representatives (well not mine, but they should be for "we the people) voted on this obscene tax bill. I agree that Republicans economics is nonsense and I do not understand why fiscal conservatism has such an overblown reputation (not borne out by data). I am hopeful that having elected some far left folks to the House we can pull some fiscal policy further to the left and shock everyone by making America humane again (without going broke). I view all this from the cheap seats.
1
Just imagine if we used the trillion dollars to fund things the country actually needs and the majority of voters (that would be voters, not major GOP donors) actually want? Improvements for Public Education, Rebuilding Infrastructure.
But no. And in the end, the Trump's GOP had to whip up baseless fear-mongering to get out their midterm vote. Think about it. The top GOP operatives were armed with the best lies and liars that money could buy and the bullhorn of Fox and AM talk shows. And with all that, they were unable to craft campaign talking points about their tax bill, that enough of their potential voters would swallow.
3
How do we get all this "tax cuts for the rich" lost revenue back?
3
@rls
It's their revenue not ours.
Last week's blue fizzle means another sad thing for America: two more years of inaction by coingress. The fact that Krugman rejoices in that is a shame. How exactly is it OK when NOTHING is done legislatively for 2 years, Paul?
1
@Yulia Berkovitz
The media myth foisted on the public is that successful gov't is all about "getting things done", "working across the aisle" cooperation and compromises, and "centrist" pragmatism. That may be true unless one of the two parties, the GOP, (1) thinks any compromise is weakness, wishes to solve problems (or even can correctly identify any REAL problem confronting us), (3) hasn't accomplished anything beneficial for America in 3 decades, and (4) believes government IS our enemy and confuses economics with Ayn Rand ideology.
1
Because when the GOP gets things done everyone suffers. Also, there wasn’t a whole lot of bi-partisanship under Obama. Why was that? Oh yeah...
1
I know a lot of Trump supporters who think Trump did a great thing. "The economy is booming!" These are people who have blind and baseless faith in the trickle-down theory. It's so illogical: Aside from the occasional charity or church donation, most Republicans I know are most definitely NOT interested in sharing their own wealth. So why would they expect anyone else to want to spread the wealth?
We all saw this coming. Trump's gift to the rich will in no way help the not-so-rich. And now we have a beautiful deficit to overcome. Democrats are always the ones to clean up these Republican messes.
3
Trump's tax cuts also failed politically. Why? Because corporations reaped billions while I saw an extra $120/month on my paycheck. That's roughly an extra 75 cents/hour. To me (and probably a lot of other folks) that's a lot like telling us peasants we get an extra meal on Sunday so long as we keep sending buckets of gold to our overlords.
Thanks a lot for nothing Trump. #TrumpsSwamp
4
I think there is a failure on the conservative side of asking "is there something that would work better than tax cuts?"
Obama's method of subsidizing health care (for those too rich for Medicaid but too poor for real insurance) was one way of rationalizing the health care industry, bringing down inflated insurance co profits and moving it into delivery of services instead, helping take the burden of insurance off corporations and putting it on the individual, etc.
How about "net neutrality"? Wouldn't that encourage a greater number of participants in the media world because they would know that they would have access to the media, like businesses knowing they have access to water utilities?
How about creating a more competitive energy industry where carbon's true cost is taken into account.
More and more it seems to me it is the new left which is urging a competitive capitalist model and conservatives who are strangling markets to wring every last drop of monopoly profits out of the system.
3
Material cuts to the corporate tax rate were passed in the UK and the US but were blocked in the Australian Parliament. Shortly afterwards the Australian prime minister was removed in a process reportedly triggered by a media baron with interests in all 3 places. That prowess would not go unnoticed in certain political circles.
1
I'm a CFO. We are not hiring any new people or giving extra wages or investing in additional PP&E.
Tax cuts have not increased the market wage we need to pay to keep employees or changed the number of employees we need for the work -- and have not increased the demand for our product. Tax cuts have not resulted in increased production or revenue.
The tax cuts have allowed the owners to keep more cash. The owners in general don't then consume more (which might add to general demand for goods and services) -- they stuff the cash in real estate or mutual funds.
The tax bill should have been called the stock market and real estate inflation causing bill.
It needs to be pointed out over and over again that to the extent people observe what seems like economic growth as the result of tax cuts -- it's the effect of leverage. What we measure and observe is effectively total spending. Tax cuts without spending cuts is leveraging up the economy and calling it growth. It's throwing a party today at the expense of our children. It's stealing from the future. Things are great today -- we're having a party. But, we have added a ton of risk to the system and it's very unclear how we can handle it when the party is over -- which it inevitably, eventually, will be.
Tax cuts are great for owners and corporations. Don't think you can dispute that. Nobody prefers to pay. But at the levels of tax and deficits we have today -- very bad public policy.
7
Capitalism is like fire. Fire can be an extremely useful tool, which in primitive times, thousands of years ago, allowed the caveman to cook food and keep his shelter warm. In modern times, fire is important in manufacturing, industries like steel have to melt metal etc. But as good a thing as fire can be, it can also destroy, by burning down your house, if not properly controlled on your stovetop. The problem with the Republican/Conservative view of capitalism today is that they are totally against any financial regulations, what so ever, no matter how small. They want a Darwinism type of economic system, survival of the fittest, the weak just die off, no social safety net for the poor, unemployed, elderly, retired or middle class (the vast majority of people). The GOP claims there is no money for infrastructure spending to repair and maintain or roads, bridges and tunnels and power grids, etc, but they just passed a $1.5 Trillion dollar tax cut where 80% of the benefits go to corporations and the richest 1%. Capitalism as a socio-economic system would work much better if it is reasonably regulated and controlled, a more fair and progressive tax system, laws that protect consumers, a strong labor/union movement to counter management and the owners of capital. Forced arbitration clauses, upheld by courts, is the newest thing that is stacking the deck against average people and favors corporations and the rich. Capitalism, like uncontrolled fire, is burning everything down now
5
Absolutely right. The Republican party isn't remotely conservative anymore. They are stealing from the future to re-divide the pie, using their power to double down on giving more of the pie to the 5% that already own most of the pie.@Seymore Clearly
The economy is strong. Mr. Krugman's response is that once upon a time it was strong then. There have been other good economic times. But he leaves out what is impacting the people rather than some economic chart. Unemployment has dropped to the lowest jobless rate since December of 1969. There were a lot of men and women working for the army because of the Vietnam war. Also, a lot of workers were needed to make the things wars need. The number of unemployed persons has decreased by 270,000 to 6.0 million in 2018. unemployment rate for African Americans and they're youth is now the lowest ever. For Hispanics, the lowest ever. Employment rate for the handicapped is going up as opposed the rate going down before Trump. Small-business confidence is at record levels. Consumer confidence the highest in seventeen years. While Mr. Krugman is looking at charts and other information to support his opinion. A lot of other people are looking at pay checks rather than unemployment or welfare checks. Tax cuts are just one part of an economy but a very important part. One group has had a significant tax increase.They are all those who did not have a job before Trump but have one now and will be paying taxes this year.
2
@Ron
last time unemployment was so low America's biggest employer was GM , now it's Wal-Mart
thank you
1
I'm wondering who the tax cut really benefited as most of the extremely wealthy, like Trump and Kushner, as well as most multi-billion dollar companies pay zero taxes?
In fact, for most, their tax position is actually a revenue stream.
Kushner is worth over $350,000,000 and he got a check for $4000 from the IRS after he filed.
3
Some have said it here but I'll say it anyway. It's not the supply, it's the demand. Or in other words, I can only sell what people want or need, not whatever I can offer. Putting out more tables in my restaurant -just because I have more money to invest- does not mean more people will come in. I will only build it if the market demands it but not because I have more money to spend.
Clearly, big corporations can't find new market niches to invest so they buy back stocks.
3
Trump’s tax breaks resurrect Gordon Gekko’s financial fantasy in the 1987 movie, Wall Street: “Greed, for lack of a better word, is good.”
Global US companies repatriate parts of their balance sheet back to America, where they earmark as much as $1.3 trillion as payouts to shareholders (Goldman Sachs’ estimate for 2018).
Much of this corporate largesse comes in the form of share buybacks; the shares are either canceled or held as treasury shares, neither public nor outstanding. The move increases earnings per share, the holy grail of many investors, the P/E ratio. Share prices rise until they don’t.
Is the future of the company brighter? Have new jobs been created? Are paychecks bigger? No, but the Fat Cats are fatter, especially if they tether their holiday bonus to the share price, which most do.
4
No surprises here. Why would one think that the selection process for President which maximizes political cunning is the same skill as possessing skills to chose people who are best in tax and investment policy. The wonder is that things are as good as they are economically. It well may be that intellectually most of the time, we do not choose individuals who are up for the job as president. The Chinese arguably with their in part Mandarinate selection may not suffer this deficiency. Our 70 to 80 year streak of good luck in national leadership may be ending along with U.S. democracy.
1
In Alaska, we have what is called the Permanent Fund Dividend (PFD). It is money that was invested by the State of Alaska in the name of Alaska Residents. Every year, every Alaskan that has lived in Alaska for at least a year is eligible to receive free money, depending on how much the fund earns from investments. This year, the Alaska Govenor cut the dividend in half. Every adult and child received $1,600.
Every year that this PFD is distributed, the Alaskan economy goes up. People pay bills, book vacations, buy new toys. This is an example of how the economy in the U.S. could benefit. Not exactly with free money, but it proves that economies are improved from the bottom up, not from the top. A person that is not rich, will spend extra money to buy goods that have been put off by lack of capital.
Mr. Ford proved that, when he started producing his first car. He ran out of customers, what did he do? He created them by doubling his workers wages, so that they could afford a Ford car.
1
Do you really believe that we had a tax cut in 2017? with government spending increasing; while IRS is playing a less significant role, the dollar printing press and the treasury bond machine has more than made up for it.
Why was Trump's tax cut a fizzle? Because it was designed as payback to the republican donors for all their campaign contributions. All the alleged economic benefits were only meant to be after-the-fact propaganda as a way to sell it.
I seem to remember Paul Krugman making this very point on several occasions. I'm not sure why he feels it is necessary to treat the tax cut as a serious economic policy.
As a political investment it was a good one. Yes, the blue wave came, but with a divided congress taxes will stay where they are for at least 2 more years. And when the next president comes along the big bill the next congress will pass will, at best, raise taxes back to where they were before Trump. And raising taxes any higher than that will give the GOP all kinds of rhetorical fodder for the elections following that. This is political cynicism at its finest but when one party is bought and sold by the wealthy this is what happens.
1
Two points that seem so simple to me, yet seem to utterly evade so many when being hypnotized by the right-wing tax cutters:
1.What serious business person would turn down any appreciable amount of profit? Sure (using the pre and post rates), 65 mill (or K or billion, whatever) net net after all taxes etc is appreciably less than 78 mill (or...), but it's infinitely more than zero additional profit...
2. Haven't the tales of cooked books, shady CEO's, crooked dealings, labor/consumer abuse, etc been an absolute common-place meme throughout society, ingrained in popular thought, for, you tell me how long - hundreds of years, millenia, since humans started conducting business? Why would anyone expect any different from today's mega businesses?
2
More and more, it seems that the only constituents the Republicans really care about are their (ultra-wealthy) donors. Their policies do not actually benefit the residents of their states. After all, who doesn't want health care? They have been counting on their ability to hoodwink the voters into thinking these policies will help them.
2
Taxes for businesses in the US are on profits. Companies with no profits pay no taxes. Taxes are a relatively small fraction of the revenue dollar except for companies which operate on high margins. Most small businesses operate on low margins and are, thus, relatively unconcerned about tax rates. Only organizations which operate on high margins benefit greatly from tax cuts. Decisions about whether to expand the business and hire more workers are driven by the total cost of doing business. For companies with margins less than 10%, taxes of 30% of profits represent only 3% of the costs of that expansion. That is usually not enough to push a decision from no to yes.
This is a well thought out piece.
It is typical of liberals to think things through which is very unlike how Republicans do things.
Remember how democracy was to flourish in Iraq? Remember the Republicans saying they will replace the ACA with a better program for healthcare? And now this well thought out tax cut by Paul Ryan and his colleagues?
None of these were thought through. The Republicans always have their foot on the gas and where they should slow down at the crossroads of culture, science, national interests and economics they, instead, speed through with little regard for the colossal catastrophes they create.
This tax cut had no thought behind it. It was incubated and nourished by pure, insatiable greed, where Ayn Rand's gospel of selfishness presided over the delivery. The Republicans knew what they were doing when they pushed this tax cut through. The economy as a whole was left to shift for itself. The main reason for this tax cut is that the money was there for the taking. They had the power and means to take it and they did so. The better interests of the country, which are its citizens, be damned.
5
Dr. Krugman - Thank you for this clear and insightful piece.
Is there any way to know how much demand might have been stimulated if the tax cuts had gone mainly to the middle and working classes - in other words, people who would actually spend it - instead of corporations?
4
What I find most shocking about this outrageous tax plan is union worker support, in Ohio and elsewhere, for Trump and the republicans who passed this tip off. My spouse is a skilled union tradesman who has had to travel out of town/state numerous times over the years in order to survive financially. During economic down turns locally and nationally, the ability to work in another local with a big job has been a lifesaver. This travel costs a significant amount of money for temp housing, and massive mileage and increased costs for food (cheap hotels dont have cooking facilities). It costs money to make this money. Now, the republicans have taken away these deductions!! Screw the blue collar working man trying to support his family! Even more disturbing for the economy is the chilling effect this will have on businesses being able to build new infrastructure! How will they be able to man these big construction jobs, like the Foxconn factory, when the workers went come because it will no longer make financial sense to do so? This stupid, blindingly shortsighted tax action will increasingly limit the movement of workers to areas needing them. You can no longer deduct moving expenses either! Oh gee, no one can figure out why midwest companies are having such a hard time finding workers. It's just a mystery.
3
Yep.
Take Apple. Very very good at making phones that people want to buy. What the hell does their corporate income tax rate matter when designing their newest gadget? Not at all. They just want to make the coolest most attractive product that will outsell Samsung. Whatever drops to the bottom line after taxes is whatever it's going to be. We need to be encouraging innovation on multiple fronts. Tax breaks for research costs are far more effective at that than just lowering the corporate income tax across the board.
Mr Krugman states what I have often believed as a business man with his statement, "The answer, I’d argue, is that business decisions are a lot less sensitive to financial incentives — including tax rates — than conservatives claim." To further validate this claim, it is interesting to note that investors often use a financial measure of profitability "EBITDA" against which a multiple is applied to determine a reasonable price to pay for a business. "EBITDA" stands for Earnings BEFORE Taxes, Depreciation and Amortization. That is to say that if a venture is presumed to be and remain profitable, investors will buy irrespective of taxes.
Similarly, if a business is profitable, and has potential for growth, there is not a self-respecting business operator who would not invest to achieve even greater growth irrespective of the tax bill.
Sure, there are many who make investment decisions based on tax consequences, or those who try to achieve the most tax efficient structure of a deal or a company. In fact, all self-repsecting decision makers should and do consider taxes. However, most often, those considerations come after the decision to make a deal on the merits of the opportunity for profitable growth -- interest and tas rates be damned.
I received a very slight increase in my net earnings, and my medical supplies for my insulin pump have doubled in price along with my deductible.
Thanks, Republicans, for destabilizing the insurance marketplace and sabotaging healthcare reform.
I can't tell you how pleased I am with Trump and his GOP court jesters - because I'm not, and mentioning everything that disgusts me about this Republican party will probably make me sicker.
4
I would disagree slightly with what's written. Decreases in high marginal tax rates, say 70 to 90 percent seem to yield an increase in growth, especially at the upper end of this range. However, since these high marginal tax rates are rare outside of wartime, it doesn't apply here and now. Still, this research is often used to fool the uninformed or foolish.
2
Yet again, we need another Marie-Antoinette moment to make the extremely wealthy take the hint.
Many times over, probably.
It did not fizzle for the intended beneficiaries ---- the very rich. To those in the middle class who believed that Trump and the Republican Congress had any thought of benefitting them, keep on dreaming.
To quote Sen. Ted Kennedy, the rich got new Mercedes, the rest of America got a hubcap.
2
How about trying a different version of supply side economics, give the tax breaks only to those who actually provide wide benefit to the community rather than to those who promise such benefits. Here is how it might work:
Tax companies on their US turnover. Give large tax breaks on hiring US workers with benefits (good jobs), medium tax breaks on hiring US workers and small tax breaks for other activities like capital investment.
The greatest flaw in this approach is supporting companies which create lots of good jobs without stellar productivity. Is that really a bad thing?
Tax cuts to tax payers are like candy to children, irresistible. No one with any wisdom has the courage or the ability to assert that our way of life requires a well functioning government that serves all the requirements that we collectively require, and the cost will be covered by paying for it with taxes now or in the future. There is no escaping it. If the lenders are not paid, the result is that all the money owed becomes lost wealth. Some it that may be offset by the value of things built with the borrowed moneys but most of it is just removed from the wealth that has been created.
Tax cuts that do not represent surplus revenues produce deficits which require borrowing money or inflating currency. Trump’s cuts will remove vast amounts of money from the use by all but those collecting new wealth. It will stifle demand by sequestering it from the use of all others. It also means that those who control the wealth will not see opportunities to make new wealth with manageable risks.
1
Republicans don't use the tax code to raise revenue. They use it to bribe people and corporations into supporting them Witness Scott Walker's $100 per child tax credit announced three months before his failed re-election bid, or his $4 billion tax giveaway to Foxconn, which promised to create 13,000 jobs Walker touted as the result of his pro-growth policies. Bribery can be very effective. It should also be illegal, even when employed by ambitious politicians who call it a tax cut.
1
Can we presume that your definition of bribery includes offers to increase and expand the minimum wage if elected, (JFK) or a platform that includes tuition-free college of elected (Bernie the Socialist)? Both are essentially buying votes with other peoples money.
1
"Republican economic doctrine" has always been fiction, even before George H.W. Bush derided it as "voodoo economics."
The only Republican agenda is redistributing the nation's wealth to wealthy donors. That means tax cuts for wealthy persons (individual and corporate), removing legislative and regulatory barriers to greed, and dismantling programs and services that benefit non-wealthy Americans. The donors want a government that exists solely to defend their interests and to facilitate the redistribution of wealth. Anything more than that unfairly competes for capital and cheapens the value of hoarded cash.
That agenda has been undeniably successful, as extreme income inequality, wage stagnation, and job insecurity attest. Donors are getting a lot richer at the expense of everyone else. But it's difficult to sell that agenda to the millions of people Republicans need to vote consistently and enthusiastically against their own interests. So they created an alternative reality, with a fabricated ideology and economic doctrine: The wealthy trickle down their handouts and make everyone prosperous. And when we became prosperous, we don't want Big Government confiscating our wealth to fund lobster and Cadillacs for welfare moochers!
It's unsurprising that Republicans continue to promote trickle-down, even though it has never happened in 40 years. They have nothing constructive to offer non-wealthy Americans. What is surprising is that many voters continue to believe in it.
1
Deficits don't matter when you have a republican president and providing tax relief that do not need it was a waste of resources. Of course executives at fortune 500 companies will vote to buy back stock and enrich themselves with bonuses and their income tax bite will also be less. We should have invested in Infrastructure we need so badly which for the over 1 trillion in tax cuts would have been better spent creating jobs and helping us compete on the world market place. Look at airports in China etc compared to our broken down airports , roads and bridges . Income inequality is a problem spending on infrastructure would be a better investment than tax cuts for the already well off.
Perhaps but I really doubt that Chinese highways, bridges and dams are built with six figure Teamsters. Maybe therein lies the answer.
Somehow this posting was missed; posting again:
Until the Reagan era, conservatives of both parties didn't like tax-cuts because they were afraid of deficits, after the huge deficit spending in WWII. So during the entire Eisenhower administration the top rate stayed at 91%, on over $2-3 million in 2016 dollars (mostly over $200,000 then). And in the 1940s, the top 0.01% paid close to 60% in federal income tax, which dropped all the way to just 22% by 2005 https://upload.wikimedia.org/wikipedia/commons/e/e8/US_high-income_effective_tax_rates.png with Bush tax-cut & treating $billion "carried interest" as capital gain to be taxed at 15%.
In Missis. many poor folks pay sales tax at 12%! Sales taxes & payroll tax are highly regressive. No matter how much you make you pay no payroll tax on over $128K in 2017. And the bottom 20% pays 7 (seven) times more as a share of their incomes in sales taxes than the top 1% does!
We should keep pushing to cut payroll tax on the first say, $20K, like 1% on first $10K & 2% on the second $10K. Lift the cap but cut it again to 1% beyond say, $150K to be less unpalatable to the rich.
I would also say have one other top marginal rate of 50%, not on $2-3 million, but on say over $15 million. No more than the top 0.05% households would pay more. At this income level, incomes from all sources should pay at that 50%, not at 23.8%. This would raise revenue by hundreds of $billions annually, I think. These proposals are quite modest.
1
Contrary to your assertion, payroll taxes do not end at $128,000. The income tax doesn’t stop there nor does Medicare. Yes, SS doesn’t tax income above that amount but as long as it is old age INSURANCE, the deduction must reflect the fact that SS benefits are capped. Therefore, when filing for benefits, a large portion of a very wealthy person’s income will not be reflected in their monthly benefits.
@A.G. Alias:"I would also say have one other top marginal rate of 50%, not on $2-3 million, but on say over $15 million."
Make it 50% of anything over $1 million. Make it 37% of anything over $200k.
That's put things in proper perspective here.
2
@Jp
Thanks for your reply.
But the problem is to get income taxes raised. It would be nice to raise income tax to 50% on over $1 million but that won't fly.
When Bernie Sanders proposed to have a top rate of 52% on over about $12 million, they accused him of being a socialist and with no basis & said he wanted to tax you at 90%.
2
I’m a proponent of “trickle up” economics. Cut the taxes on the middle class and lower class so they have more income to purchase. These purchases would create incentives for companies to expand capacity, hire more people and generate more corporate profits.
2
@DB
One could argue that the tightening labor market reflects increased hiring which is caused by...increased demand.
Republican legerdemain done poorly since anyone who bothers to look can see what they are hiding up those sleeves. One supposes Republicans hoped the initial fanfare of passing the tax cuts including media coverage of a few companies handing out (one time) bonuses, along with an ephemeral sugar high electorate mindset, were intended to last at least until the midterm election. When the talk of crippling deficits, stagnant wages and corporate stock buy backs began to dull the Trump tax cut "euphoria," justification to cut Social Security, Medicare and Medicaid began to fall out the sleeves of some Republicans, alarming many Americans who rely on these life saving programs. While the Trump tax cuts are indeed very real, if not unprecedented and overly generous, especially during relatively good economic times, their promised benefits to the American economy are nothing but fake news.
1
It wasn't a fizzle if you like big deficits.
More attention needs to be paid to Kansas, which aptly demonstrates the failure of right wing economic theory. That state has become a cesspool of poverty due to Republican fiscal thinking.
Dear Dr. Krugman,
Thank you -- jeez, it's been nearly twenty years now -- for being a breath of both humanest intelligence and savvy economic analysis. For me, you are one of only two or three truly moral beacons left in "American" life. I wonder sometimes how -- or if -- you sleep at night. I myself, in these obviously venal Trumpist times, barely get a wink. Wish I could take you to breakfast, to hash out (no pun intended) in further detail all the salient and not-so-salient things you write about in your columns. Keep fighting the good fight, is all I can say. You have been, for me, a lifesaver. Tim
P.S. I have an utterly useless Economics degree from Cornell, along with a slightly less-than-useless one in English Literature.
1
"...it's difficult to get politicians to understand..."!?!?
Seems to me the politicians understand all too well! It is the voter that doesn't understand.
Trickle down gets shot down since it was first created. GOP won't give up their VooDoo.
Good article, sir.
When I think of Trump's "tax cuts" for the top 1%, I think of Mnuchin and his let-them-eat-cake wife at the U.S. Mint, mugging for the cameras. I think of executives now seriously considering that yacht they've had their eye on. I think of CEOs renovating their 1200-foot kitchens for the umpteenth time (white is so tiresome...let's go gray this time, with perhaps a complementary soapstone sink). Of course they're going to spend it on themselves! Tinkle down economics (thank you, Archie Bunker) is here again.
1
Love that last paragraph!
We all know that Trump did this to garner 11 million for his organizations.
Let's not forget the shouting match between Sherrod Brown and Orin Hatch a year ago almost to this day:
“That whole thing about higher wages, well, it’s a good selling point,” Mr. Brown said. “Just spare us the bank shot, spare us the sarcasm, and the satire.”
Mr. Hatch, who had wearily tolerated hours of debate on a bill that Republicans have always planned to push along party lines, had heard enough.
“I come from the poor people, and I’ve been here working my whole stinking career for people who don’t have a chance, and I really resent anybody saying I’m just doing it for the rich,” he said. “Give me a break.”
Ha. Good riddance, Orin.
4
Myself, I adore the way that right-wingers justify this hocus-pocus by looking only at those few times or situations in which taxes on business or whiever really are absurdly high for some reason, or by magically transforming the theoretical reality that at some point taxes really do become so high as to depress growth into pure fact.
But my fave part of this particular right-wing scam is watching the kooks defend it. When it doesn’t work, the greedheads always pull the same trick—it didn’t work! Because the communists didn’t allow us to do ENOUGH of it! We need more TAX CUTS!!!
It’s really quite a beautiful example of the logic that every mad scientist knows: “My beautiful creation! The electric shocks have not worked! It has not yet come to life as it must! Igor, MORE KITES! We must have MORE LIGHTNING!!”
By the way, I learned quite a lot about economics by reading Terry Pratchett’s account of the Glooper. Which I recommend.
1
Paul, Please, oh please; stop referring to this "thing" as a tax cut. It was not designed to be a tax cut and was not sold as a tax cut, so please just stop calling it a tax cut.
It was designed and sold as "Donor Reimbursement". It was a bill that was designed to keep the cash from big donors flowing to the GOP. It was delivered as a "tax cut" but was designed and sold as donor reimbursement.
You may be wondering who my reliable source is; why it is Paul Ryan. It is all a part of his three step plan; cut taxes, raise the deficit, slash entitlements. He has delivered on 2 out the 3 steps.
So please start referring this "tax cut" by what it was designed as; Donor Reimbursement".
Achievement implies success. this scheme was, like everything
else we've witnessed, a power play. TV ratings. Populism and most watched go hand in hand. Turn off the TV. Read the Times, and the Post. THEN go to the polling station. America needs people who understand. Spend money on schools and teachers.
If someone tells you what they heard on a "certain TV channel",
ask them to verify the source. If they don't care but "it has to be true", tell them they're not doing their homework.
These 'tax cuts,' especially at this point in the economic cycle, were an abomination, but so new Prof. K, most of them since Reagan have been. Anyone who has briefly studied this myth of lower taxes as economic growth panacea knows this. What's an even bigger issue, which this measure rhetorically was designed to address is the use of tax havens, ie how to compete with 0% tax rates. When 20-50% of income for US multinationals comes in from abroad, and 40% of it goes virtually untaxed off-shore, it's an even bigger US job killer than share buybacks, or CEO overpayments. There will always be a cheaper source of global labor, with weaker environmental laws, and lower tax rates, as long as we allow corporations to use them without consequence. As many have commented on here only local accountability keeps corporations honest. Now most CEOs never even visit, much less spend time in their non HQ offices and factories. A VAT tax would help offset offshoring, and should be a serious tax replacement consideration until corporate domicilary laws are updated.
How about we have a budget, then raise or lower taxes to cover that budget. If we want lower taxes we cut services, if we want a bigger military we raise taxes. We sure love to say we are the biggest, the best, the whatever, but then we don't really want to pay for any that and instead borrow. Sad.
1
Created a massive deficit giving the Republicans justification for demanding reductions in 'entitlements' we have been saving for throughout our lives. Social Security, Medicare, Medicaid. This was their goal, apart from enriching themselves.
2
As you have pointed out for years, we always hear that tax cuts will produce jobs, and then it doesn't happen. How about a corporate tax system where corporations are sure to get a tax cut WHEN they produce a job. Say you get a tax credit for every qualified job you provide. The job would need to be a living wage job with benefits. If we eliminated all the loopholes, we could fund that credit.
2
Democrats have much better policies, including investment, taxes and farming. They are awful at explaining them in small catchy sound bites. The so-called "liberal press" regurgitates Republican talking points ad nauseum, refusing to do thorough research and debunking of their failures, over and over again. Nothing will change until Democrats can better articulate their policies and basically shame the media into producing the empirical data that backs it up. Low information and cult followers with not care or believe, but this elections proves that many voters are very hungry to get more than alternative facts and sound bites to inform them.
1
How can we consider the tax cut "one major achievement"? It was a disaster and further exacerbates the gulf between the 0.1% and their lobbies, and everyone else. Trump winning, was bad enough. Trump angry, will be unbearable. I expect two more years of gridlock while other countries continue to pass us by.
Bloomberg says we're 54th out of 56 countries for healthcare efficiency so we can't get much worse there. I guess now we can concentrate on making our education and infrastructure even worse and on destroying the planet. I feel another Bush type recession coming on. Does anyone other than Pinker have any sense of optimism that this will end well?
3
Every Republican tax cut has been a fizzle because tax cuts for the rich have never really boomed the economy. BUT, more importantly, tax cuts for the rich have resulted in tremendous and increasing inequality in the richest country on earth. Tax cuts for the wealthy are the reason why the homeless are piling up in our streets.
Moreover, tax cuts have crippled our society as it has crippled our government from being able to do what only governments can do for the people - that the free market would never do. Anti-governentalism, in the end, means everyone for themselves - and we stop working together.
You need some socialism to make capitalism workable.
1
Lets be honest about the Republican trickle down scam. Trickle down economics is a term meant to lull ignorant voters into complacency and it keeps working. The fact of all those nasty rich white people tax cuts is trickle up. The everyday working American buys things and the corporates keep more profits to distribute to a small group over overpaid executives and shareholders.
Taxes on working Americans are not lowered, their salaries are not raised, so more money ends up in the top instead of being spread out in the society for things like better education, healthcare and infrastructure- all things rich white people dont want the “government” to pay for because it would disproportionately come out of their already overstuffed pockets.
Republican policy had one goal, to maintain rich white privilege. That’s why they are so scared and push back so hard against the democratic majority.
2
the republicans pushing these tax cuts know full well that they don't help anyone but the wealthy. 'supply side' or 'trickle-down economics has never worked and everyone knows it. the fact that they keep trying to sell tax cuts to the wealthy as benefiting the common man is insulting to our intelligence. they truly must think we are stupid to keep falling for this.
1
Pay the worker bees more? That's for suckers. Masters of the universe have Italian sports cars, yachts, jets, five-star resort vacations, eight-figure mansions and GOP politicians to spend their excess wealth on.
2
The political system has been corrupted thoroughly to eliminate the rights and wages of workers. Without a true labor organizing presence in working people's lives, they will be forced to surrender to these absurd Republican assertions about the benefits of tax cuts for corporations.
The Republicans expect the 99% will benefit from the sewage running downhill from the Republican sponsored mansions.
2
I presume a lower tax rate encourages companies to declare profits in the US, that would have formerly been declared elsewhere. Does this mean the US government collects taxes that would have formerly been paid to other countries?
1
The tax cuts were "a pure giveaway". No thought, rushed through in a political grab bag to reward campaign donors. This was the height of the effects of FEC vs United. The Times might give us a graph showing ROI (rate of return) on lobbying money/campaign contributions by individual corporations including real estate investors and what there bottom line returns are. My guess is generally thousands spent rewarded in many cases by billions. (example: $4million by AT&T directly to Trump to close a merger worth $billions)
And the law was structured in such a way to give no incentive to domestic investment, i.e. to bring back manufacturing jobs to the U.S. It was written by those who sent them overseas in the first place.
Among other things, will the Democrats be able to change FEC vs United, or make it a campaign issue so that it is changed in 2020? Matching small donations with public financing is the answer. And corporations are legally not people. They have limited liability. As an example the whole world will suffer form the continued unmitigated use of fossil fuels. The oil companies continue to lie about the science, run phony ads about the fake benefits of their products, attack critics, and pay off politicians--all with no accountability of the external costs, actual harm caused from the continued burning of fossil fuels.
When it comes to elections, the Constitution mentions People, not fictitious business entities. Blessed be the Meek deserves better.
2
In 2004, the Vermont legislature passed Act 152 (H.784). Per the VT legislators' STATEMENT OF INTENT, "Vermont's separate accounting system is inadequate to measure accurately the income of a corporation with non-Vermont affiliates and creates tax disadvantages for Vermont corporations which compete with multistate and multinational corporations doing business in Vermont."
Inexplicably, however, instead of adopting the unitary worldwide combined reporting method which the US Supreme Court had approved in 1983 (Container Corp. decision) and 1994 (Barclays Bank and Colgate-Palmolive decisions), the Vermont legislators adopted the unitary water's edge combined reporting method which retains separate accounting for multinational corporations but not for national corporations. This continues the tax disadvantage for Vermont corporations and tilts the playing field in favor of US -based multinationals and even more in favor of foreign-based multinationals because the pre-tax US profits that they shift offshore are not subject to repatriation.
1
We saw the same thing under Reagan when his corporate tax cuts were supposed to see manufacturing retool and modernize. Corporations instead took the windfall and bought other corporations, like Marathon oil buying US steel. There was no retooling of American manufacturing. The corporations just moved production overseas for lower labor costs and invested the tax cuts there. Investments which fueled rise of the Chinese economic boom. Corporations are not going to change course until a recession hits. That is what recessions are for. The direction this country needs to take is a abandoning fossil fuels and investing in solar and wind energy production. In other words no oil pipe line investment. I don't see where untargeted corporate tax cuts are going to do anything other than to further enrich the already rich and explode the national debt.
4
Don't you invest in a business when demand for your product or service increases instead of buying new equipment and hiring more employees and then hoping and waiting for customers to show up?
For rural Americans, it seems probable the current tax cuts will continue to have nearly invisible benefits by 2020. Trump is (was) now desperately talking 10% cuts for the middle class, basically acknowledging the ratifying of his greatest ever middle class tax boon was all hype i.e lies.
In 2020, as they should have this year, rural Americans must ask themselves. "Am I significantly better off now then I was in 2016?" Trump promised you would be. He needs to be held responsible for "Promises Made, Promises Kept".
1
Tax cuts have been the siren song of the Republicans for decades. The song works for the rich because they get richer. The song works for the corporations because their CEO's get heftier bonuses, and the stock holders get higher dividends. Does it benefit the economy? No.
What benefits the economy is greater prosperity of the middle class. Not the greater wealth of the rich.
If the middle class has more money, it will buy more goods and services; the corporations would expand their factories; entrepreneurs will start new businesses, which in turn will create more jobs, which in turn will create more demand and more expansion … creating the so called virtuous cycle.
Tax cuts for the rich simply promote accumulation of wealth for those who are already rich who, instead of investing in expanding the economy, pass on their wealth to their posterity, creating what we now see as income and wealth inequality … and, as a by product, a stagnant economy.
Our method of funding political campaigns relies on large contributions from the rich, which, not surprisingly, creates an indebtedness for the hapless politicians, who, for their political survival, return the favor by framing tax policies more advantageous to the rich. That starts a vicious cycle which becomes permanent. That is where we now are. We are caught in a regime where the rich are in charge.
Instead of democracy we have plutocracy. The middle votes for its own demise.
2
Trump and the GOP blew it. As the GOP always does.
The tax cut could have stimulated more growth, increased worker wages and consumer confidence/spending had it been targeted to the middle class.
The middle class would have spent their higher net paychecks on new goods, driving up demand which would have stimulated corporations to hire and produce more. Competition stimulated, they would have raised wages to keep/attract good workers.
The increase in corporate hiring and production would also have resulted in more tax revenues to the government even at a lower corporate rate. And the tax cut would not have led to an increase in deficits and debt as we've seen the Trump Tax Con do.
2
@jabarry
The best and rightest way of government use of authority over the economy is by using regulation to prohibit destructive behaviors and the tax code to encourage investment and job creation. It worked for 50 years until the organized effort to end it via fraud and deception by the GOP got access to make and change policy under reagan.
1
The tax cut was targeted at the donor class, and McConnell openly admitted that. The purpose was to keep their money flowing.
The good news is that in many races, Democrats took in even more money from small donors. So the tax law failed in that respect as well.
4
I have always regarded de-regulation and anything the republicans have said about the economy since reagan as a fiction with a purpose. The purpose was to increase the "taking" of profits.
What de-regulation amounted to was permission to run the corporations in lazy ways that hurt employees and the communities while increasing the profit numbers by not having spent the money required by regulation which protected the employees and communities they are in from exactly that sort of profit taking.
I often disagree with what Krugman writes, particularly when he foolishly wanders beyond economics, the one area where he has actual expertise. On a related point, it saddens/scares me to see how many people foolishly give unjustified weight to the thoughts and views of TV/film/music celebrities, as if "celebrity" was synonymous with "wisdom". (To me, the economic/political views of Kanye West or Steven Colbert deserve no more deference than do their views on optimal techniques when doing open heart surgery.) Sorry, I digress.
Krugman's article today was well focussed, logical and fortunately within his expertise. However, I think he fell a bit short in one way. He (presumably) correctly pointed out that the tax cuts did not result in an immediate surge in corporate capital investment. He opined that this was because "There aren’t many potential business investments that will be worth doing with a 21 percent profits tax, the current rate, but weren’t worth doing at 35 percent, the rate before the Trump tax cut." On surface, that seems quite sensible. However, I began to wonder if perhaps the lack of an immediate surge instead reflects the reality that the identification/analysis/internal-approval/regulatory-approvals/permitting/funding of major capital projects do not happen overnight. They can take years. As such, why would Krugman reasonably expect that a reduction in the corporate tax rate would result in a large immediate increase in major corporate capital projects?
1
That's if one believes these tax cuts had any real practical reason. They were plainly to reward rich people especially Trump and Kushner and corporate tax scofflaws. The economy in general is operating on the momentum built up in the Obama years from which Trump has benefitted from politically. Another reason is that the Republicans are trying to defund the gov't. The Pentagon is going through an expensive nuclear weapons modernization program is another gov't spending sink hole. So the next step is cuts in middle class and poor health care programs and Social Security.
Worker-owned, worker-run COOPERATIVES are the only antidote to these faceless, hierarchical, winner-take-all
corporations. And no, cooperatives are not "commies"; in fact they are true free enterprises structured on and managed by democratic principles (corporations are neo-feudal structures).
But corporations don't want you to know about cooperatives: it would take away their monopoly power over labor (not just markets)! And those rentiers & shareholders would actually have to work for their share of the pie.
Just google Mondragon & follow the links to lots of examples
of this form of business. It is truly thriving and its workers have a prosperous quality of life as well.
In my view, "Tax Law Philosophy" is what differentiates Democrats from Republicans. The standard Republican approach to corporate taxes is simply to lower them, with little or no strings attached, and may the Free Market determine how and whom will reap the benefits. The Democratic approach is to identify specific needs for improving specific sectors of the economy and incentivize companies (or individuals) to make these targetted investments by rewarding them with tax cuts.
One great example of this occurred in the 1st Quarter of 2009 when Barack Obama assumed the presidency. The financial crisis of 2008 was hitting auto manufacturers really hard and new vehicles were filling up auto dealership lots. The Obama Administration provided immediate tax incentives for buyers to purchase new cars... and the auto dealerships started selling their inventories. Auto production ramped up once again, and the supply chains for the auto industry started receiving orders once again.
1
I'm a senior in a retirement condo, my savings and SSA may hold me above the need for assistance from my kids or other sources. Based on a guesstimate by a competent accounting firm assuming no major changes in or out, my federal income tax will be going up by 3 to 4% per year, my expenses by roughly 2.5 times the official inflation rate.
2
In business circles, the tax cut had the effect of removing the headline, "the US has the highest corporate tax rate," which did have an impact on the perception of US competitiveness. It should have simplified the way multinational accounting and increased long term plant investment allocations. These impacts won't be felt in 2 years. It will be more like 10.
At the same time, this tax measure should have been used to simplify corporate taxes in a revenue raising way. Instead, it added more goodies to real estate investments and attacked blue state voters though limiting state deductions.
Given the massive deficits and growing US debt occurring in good times, painful choices will have to be made. Unfortunately, it will be up to Democrats to clean up the profligate GOP mess.
2
I'm glad Dr. Krugman brought up the example of Ireland, which has a very low corporate tax rate (12.5%) and has been acting like a fiscal pariah in the EU. Remember how Apple made a shady deal with Ireland? It resulted in a laughable 0.005% effective tax rate in all of the EU (now rectified, tbc). Ireland (or Mississippi) should have some leverage to attract at least service businesses, offsetting an unattractive remote location, but not to the extent of fueling a race to the bottom in taxation.
In fact, the growing power asymmetry between increasingly global corporations and local governments is a problem. Countries (or in the case of the US, States/Cities) are increasingly pitted against each other for investments, resulting in a global tax shift from corporations to individuals.
Only scale matching can counter this trend. Both the EU and US markets are big enough to impose tax rates and regulation upon global corporations, but they each have their failings. US States and Cities spend approx. 50 billion each year on tax incentives, whereas aforementioned lack of harmonized EU-wide corporate taxation is putting pressure on corporate tax rates there.
So it's easy to see how dropping the corporate tax rate in the US to 21% was a mistake, a handout to rich shareholders. No corporation can afford not to do business in the US, in fact our government successfully uses this lever to prevent companies from doing business in places like Iran. Talk about being inconsistent.
2
Republicans have been running on this sort of supply-side theory since Reagan, and it has never worked out like they say it will. But even then, I have relatives who still think the GOP represents economic responsibility and thought. Reputations die hard, but at some point people must realize that GOP economic philosophy is a theory proven false.
1
Tax cuts are simply reward for the donations
made by the wealthy and the corporations.
The republicans narrative is an attempt to
justify the tax cuts. They can't say they are
rewarding their campaign finance contributors.
so they have to cook up something for
Joe and Jan.
The GOP tax cut was a fraud from the start, as admitted by some it was nothing more than a quid pro quo, but Citizens United opened the door to what had already been creeping along well enough on its own. Corporate & other donors were now allowed to pour money into politics. Our supposedly greatest legal minds, the SCOTUS, showed they had no broader view of the intent of our Founders’ or the Founding documents. Did SCOTUS really think that our nation, created to escape from a monarchy, was actually intended to be controlled by corporations? Did SCOTUS think that the Founders rebelled against tyrannic rule because what they really wanted was rule by oligarchs? And, in light of Justice Stevens’ dissenting opinion which laid it all out for anyone to see, and as we have seen, the Citizen United decision boggles the mind in its rationale and effects.
This case alone shows why changes are needed to how we select the SCOTUS, and to reform campaign contribution and lobbying laws to return our government & politics to actually being of, by, & for the people.
1
@Len: Supreme Court justices are evidently selected for naivete.
1
Suppose the trillion dollars loaned to corporations had gone for a really big infrastructutre program? Millions of jobs, lots of revenue , lots of consumer spending, increase in transportation and better for all businesses.
2
Unfortunately the voting public links the two previous high-performing quarters to the tax cuts. The difficulty is packaging Dr. Krugman's message into a format that resonates with average voters. As such, all politics and economics are local. People feel "richer" when their 401(k) balances are up, jobs (skilled and low-paying) are more abundant and the dollar is strong. Perhaps we can find a way to help voters conduct personal inventories of the own economic circumstances (access to higher education, better wages, health care, home ownership, ect.) in the form of a checklist or another simple exercise. The conclusions they result in better indicators, or help voters understand the central argument in Dr. Krugman's latest column.
1
So how do you give the economy a boost? Long term it seems to me the only thing that works is to invest in education, infrastructure , a healthy population and a functional government to keep a fair playing field and corruption to a minimum. Why is this so complicated for people to grasp?
Don't discount the motive of greed. It makes sense to increase wages so the employees have more money to spend on widgets, increasing demand for widgets, etc. Lower wage earners are more likely to spend than the rich, who tend to squirrel away extra money. The problem is greed, with a good helping of shamelessness, leads executives to put all the increased profits into their own paychecks.
I remember the GE genius Jack Welch responding to a secretary in one of his all-hands meetings at corporate headquarters. Her question: "I've been with GE for twenty years. Always considered it a great, safe place to work. Will that continue?" Jack's response: "We're all even at the end of the month. That's a fact of life. Work hard and the market will reward us by boosting the stock price."
Tax cuts in the past have increased our paychecks by adjusting the tax withholding table to insure our weekly check is fatter. This tax cut, employers warned us to check our withholding, so we could increase withholding as needed to avoid a tax bill next year.
Corporate American continued to keep all the profits at the top and increase stock buybacks.
I think politicians understand this situation very well. They just do as their masters, um, donors wish.
1
Tax cuts for corporations didn't create jobs because corporations don't hire more employees in order to find some way to spend their money; they hire employees to provide goods and services to customers. Since the tax cuts barely put any money in consumers' pockets (except high-income consumers, who were at least as likely to spend that overseas), there was very little increased demand for goods and services, so very little need to hire more workers.
If you want to stimulate the economy, put the money where the spending is.
5
The assumption that If you give tax cuts to the privileged they will do nice things for the less fortunate such as pay increase or create new jobs. . . Nah! That’s not gonna happen with Trump, his buddy crowd, or any wealthy people I’ve met.
1
I wonder if the US missed a big opportunity to reform the business tax code to reduce tax rates in a revenue neutral way by eliminating a vast number of inefficiencies that allowed most corporations to pay a far lower effective rate.
It seems that huge resources go into creating mechanisms for evading taxes rather than productive business investments. Perhaps a far simpler tax code or a value added tax system used by much of the world would help.
1
The last line explains it all.
It is time to start the (inevitably slow) campaign towards a Constitutional Amendment to take private donations (legal bribes) out of politics.
We must have publicly funded elections. And, we must reverse Citizens United.
It can, and should, become a movement to get money out of politics with a Constitutional Amendment. We need to outlaw lobbying with cash and other goodies.
2
An increase in demand for workers reflects an increase in demands for goods. Even older workers are now in demand. Not rocket science economics.
@AACNY: Employment statistics don't suggest a surge in job growth following the tax cut. There were periods of stronger job growth during the Obama administration that were not preceded by tax cuts. But your point about high demand for workers does illustrate a constraint on the benefit of implementing a tax cut towards the end of a long period of economic expansion; some companies cannot expand because they cannot find workers with the necessary skills in their geographic area.
Neither is reading the bar graphs that show numbers since 2010, or the line graphs that show trends since then. And yet somehow...
Paul,
How about a column on a potential bill the Democrats can propose to fix this mess? While, obviously such a bill has no chance being enacted while R's control the Senate and White House, it could be a basis for their 2020 campaign.
For example, limiting the basis step-up to say $100,000 (to protect the middle class) and replacing the current lower tax rate on investment (which penalizes work relative to unearned income) by a fixed amount of "privileged income" such as cap. gains, dividends & interest and then adding the remaining investment income to taxable income (including for Social Security tax).
The sad catch 22 for rising wages is that it seems to contribute to inflation which then leads the Fed to raise interest rates which then slows the economy.
Then, of course, shareholders start whining about lower profits since more is going to wages so fewer people get hired and less investment occurs.
All the promises that tax cuts bring for wage growth and driving economic engines lead to this vicious cycle.
What a pathetically greedy society we have!
1
Dr. K,
Could you rewrite this article with smaller words, shorter sentences and lots of color pictures? If you could we could maybe all the brainiacs at the trump rallies would start to catch on.
The Republicans at the top (who won't be seen at a rally) already know you're right but your reasoning just doesn't fit their pocketbook.
1
Clinton's tax hike produced prosperity, a grest stock market, wage increases, and a balanced budget!
Eisenhower's 92% max tax rate led to prosperity, strong unions, and wage equality.
The Republicans win because they are better con men (few women), more moral (?), more prejudiced, more stubborn, more selfish, and less educated.
This is exactly the type of messaging that 2020 Democrats should be yelling from the mountaintops.
Though Trump is truly an awful human being and deserves to be called out, the Democratic Party would do the future a favour by focusing on the failed right wing agenda and proposing a better alternative.
3
Oh I don't know, the rich got to buy a bigger yacht and corporations a larger corporate jet and Republican congressmen got larger campaign contributions.
1
Republicans pull this maneuver over a variety of issues. The idea is to poo-poo a direct attack on an issue instead proposing a roundabout stream of indirect causes and then saying we should address the problem by tinkering with the so-called indirect cause.
Gun violence: caused not by guns (direct) but by bad mental health provisions. Terrible weather-driven devastation: caused not by climate change but and angry God and insufficient logging in National Forests. High abortion rates: caused not by inaccessible birth control or inadequate sex education but by not arresting and jailing pregnant girls and women along with their transportation and their doctors.
Then there's the trickle down notion that if you throw money at members of the investor class they will do something other than invest, something that never enters their minds: create jobs for people they don't know.
There are many more examples, from protecting people with pre-existing conditions to fighting gang violence. Republicans always attack some other "problem" in the guise of addressing a real one.
Dr. Krugman writes and writes and writes about Republican economic fraud in their policies. I can see him shouting from the rooftop. Waiving his arms and screaming from the street corner. He's tried everything to convince the public what a disgrace the Republican party is.
In spite of what Republicans say, there is no underlying economic philosophy that they believe in; no policies that they think will work to improve the economy. All they want is tax cuts for the rich. That's all.
While Dr. Krugman stresses this repeatedly, it seems he is talking to other journalists and the few readers of his columns that still don't get it. The other journalists are trying to make Republicans sound legitimate because they are afraid to be labeled one-sided for continually, like Dr. Krugman, trashing the GOP even if it's deserved. The few others (readers) are getting a gentle education, or so it seems.
Republican economic policy is totally fraudulent. TOTALLY FRAUDULENT. Got it?
Ok, now let's discuss the merits of the economic philosophy of the GOP and why it may or may not be flawed; how this or that Republican sponsored tax action may help or hinder the economy.
1
"President George W. Bush’s tax cuts didn’t produce a boom; President Barack Obama’s tax hike didn’t cause a depression. Tax cuts in Kansas didn’t jump-start the state’s economy; tax hikes in California didn’t slow growth."
Yeah, but Paul...these are facts. Republicans hate facts because republicans hate the truth. And republicans also hate government and these tax cuts will give them an excuse to cut those parts of government they don't like...you know, the parts that regulate or deliver health care based on facts.
It should come as no surprise that republicans, like Trump, will say whatever they think will fly with their base voters to support benefits for their wealthy contributors. The claim that this tax cut would lead to an economic boom had no basis in history or reality, but republicans don't need or even want to basis in reality.
Right wingers are faith based, not reality based. Their motto...if they believe it, it will happen. So...sorry Paul. Republicans believed the tax cut would work...and they still believe it will work...and they believe it is working now. Your facts to the contrary notwithstanding. Take your reality and shove it...republicans have faith...and they prefer their faith to your truth.
1
I think we're selling the Republican Party short in the mendacity dept... It can't be easy finding standard bearers every four years who can simultaneously sell the ideological shotgun marriage between fear of brown people/libruls/guv-mint/women, and bogus economics that stuff money into the pockets of the rich... Reagan/Bush Jr/Trump are 'pretty impressive' finds in this respect and Bush Sr./Romney/(perhaps)McCain understandable disappointments...
Thank you for this thoughtful column and dialogue.
1
You proceed from the assumption it was a failure. Not from my perspective. I have increased the investment in my businesses motivated by the expanded write-off of capital expenditures, and have received a meaningful cut in my personal taxes. Maybe if you actually tried running a real business I would believe you know what you are talking about. But as it stands your talk is cheap. Really cheap.
In other words, you already had money and now you have more.
2
@Robert. I started with pretty much nothing and have built businesses from the ground up that have provided employment for numerous individuals. Why don’t you explain your issue with that?
Republicans “understand” they are simply corrupt and owned by the 1% donor class and corporations. Republicans proclaim fiscal responsibility as to the budget, deficit/debt demanding a “balanced budget” only when a Democrat is in the White House. Perhaps the next Republican tax strategy will be to institute Louis XVI of France’s policy where Nobles of the 1% & Corporations will be exempt from any taxation, already in the U.S. the “Clergy” of the Church are exempt! Republican Tax Reform bill was nothing more than a criminal act committed against the 99% of American people.
How dare you sir! I’m quite well off, and as far as I’m concerned the tax cuts are perfection.
Leona Helmsley you were a prophet, it is now true that only the little people pay taxes. Thank god for Trump
Ha! The GOP understands!
"...a Fizzle?" It succeeded by all measures in transferring $1.5 trillion from society to the wealthiest ingrates - like trump & family - simultaneously impoverishing everyone else - as intended by the trumplicans. Incentive? What incentive? Just be idle rich and watch the billions roll into your account for doing absolutely nothing - except tip the politicians on your payroll.
The rest of it was a trumpian thud. Indeed, the theft from the masses massively helped the richest company and individual by massively cutting their Federal taxes PLUS getting billions more giveaways from local real-tax-payers to subsidize two branches. Now a giant repeat-monopolistic Cable-Telecom company - name also starts with "A" - wants the same deal too.
Bottomline, $1.5 trillion wealth transfer is a costly way to extend Obama's economy for a year 'til it runs out of steam and we get trumpian sized depression, defaults and bankruptcies.
We should be increasing taxes! That becomes the ultimate incentive to invest more of their profits than have it be taxed, thereby lowering their taxes. Otherwise tax cuts are simple giveaways to the rich.
Taking wealth from society and their government "i.e. the market" leaves an unsatisfied demand since the lost wealth makes it unaffordable. With no market, why would anyone invest in expansion and over-capacity? If there's market demand from capital rich masses, the plutocrats will invest to increase capacity regardless of tax rates
1
A recent example of corporate welfare: bezo, amazon and NYC.
These guys on both sides of the supposed aisle separatimg their purported differences know just what is going on. No one, D or R, is returning any money to the Treasury. Our politics is theater and we the voters are the audiece who keep the lights on. Polite,less deadly and more refined than many other nations, but the same game. Men rule by force, period.
Of course you're right Paul, but this is pretty much "preaching to the choir". Most of your readers know this, but what we really want to know is: what can be done about it? For that, there is only one answer: get Congress to do something it hasn't done in decades: go against the donor/investor class.
This "trickle down" economy happened due to a change in tax law under Reagan that drastically reduced taxes on short term profits. This led to companies changing their executive compensation from primarily salary-based to stock and stock option-based. At that moment everything changed. Executives now had a personal interest in delivering higher quarterly returns, and cutting everything that affected them, including employees, wages, benefits, R&D, in short EVERYTHING that didn't yield a short term increase in profit.
This practice, begun nearly 40 years ago, supported by the tax laws, is still the driving force behind "trickle down", and it has remained unchallenged or changed under Republicans and Democrats both. Is there really any mystery why the Democrats, under Bill Clinton, turned away from the working and middle class people and began currying favor with the donor/investor class?
In order to reverse this "trickle down" economy, Congress must act to change the tax laws back to rewarding long term investment, and punishing short term profit taking. The problem is of course, with both major parties sucking from the same teat, who will do the People's bidding?
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Behavioral economics lab exercises discredited trickle down years ago. A player receives $100 with the option to invest it with a 50% probability to receive a return of $200 or nothing. Is it a surprise that every player takes the money and puts it in their pocket? No corporation takes a freebee and puts it up for grabs. Three trickle down tax bills contributed over 90% of our deficit. Corporate tax to the Federal government has fallen in comparison to the overall tax collected from the post-Reagan era of 29% in 1986 to less than 14% today even if you consider part of FICA. Mr Krugman made only a passing reference to the loopholes generated by this tax bill and he did not bring out the efforts by Republican and some Democratic members to reduce the ability of the IRS to review tax returns. Over 75% of tax returns can be evaluated electronically because the upside of cheating is not a benefit. There is an increased benefit in cheating in this tax bill for the corporate or persons with an AGI of $200k or more. Thanks for the article. I wish more people would have addressed this subject before the midterms. Of the three tax bills that generated most of our deficit, two were modified within a year by members of both parties because they were so bad for the economy and the country. I do not see any consideration by Republicans for modification of this bill. Remember Paul Ryan took $500k into his political action fund the day the bill was passed.
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I agree with everything the writer said but would also point out that whilst the GOP tax cut did little to help the party in this election, the fact remains that recent polls have shown that the electorate trusts Democrats more on most policy questions except the economy, for which they trust Republicans more. Which would suggest that the GOP is getting way more credit than it deserves for an economy that was already growing before any GOP policies kicked in which, in turn, means the public may actually be falling for the fallacy that tax cuts and deregulation drive economic growth.
1
An interesting observation was made by Mr. Krugman about the 'monopoly power' which firms have.
As a student of Economics (albeit a not so bright student) in the early 80's at Va Tech, I learned about the difference between profit and economic profit. To society and the economy..profit is just another cost to society as a reward for the business doing what it does. Economic Profit is that amount above normal profit when there is plenty of competition in the market and firms may easily enter and depart.
In short..Economic Profit should be 0..which indicates there are the right amount of firms in the market and each are making their fair share of a return (profit). When
Economic Profit is negative..firms leave. When Economic Profit is positive..firms enter the market.
What I feel we are seeing now..and which is not being properly addressed.. is a condition of Economic Profits being greater than 0 with very high barriers to entry..so we, as consumers, are paying more than we should for goods and services. Firms have a monopoly which they should not.
Government has a legitimate role in ensuring markets are open and fair..and that barriers to entry do not create un-natural monopolies to those firms in existence ...othewise.we all pay more.
So...these buy backs et al are just another form of Economic Profit firms accrue...
And..we need to get to a situation where Economic Profit for firms trends towards 0..to have properly functioning markets and a growing economy.
1
I have run a small software services business for 27 years. We have to pretty much constantly invest in hardware and software. I am thankful to have been successful over this time.
I have NEVER made a business decision based on tax policy or rates - they are totally irrelevant.
Virtually no business would hire someone or invest in scaling up capacity because of a tax cut. The idea that a company would do this is absurd on its face.
Why people would believe this malarkey is beyond me
Bottom line ... you hire more help and/or capacity when the demand for your product and/or service increases, or is expected to increase. PERIOD.
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As always supply side economics do not work. We will suffer through a period such as this until the democrats regain power and clean up the mess. We have seen this scenario multiple times since the end of WWII.
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Having failed at least 3 times with "trickle down" tax policy republicans need a new act. It would seem logical if some of the republican financial geniuses in Washington might sign on to "trickle up" tax policy. Tax cuts for lower and middle income earners would almost certainly be pumped back into the economy and spent. Increasing corporate profits in a real way. Paid for by a reasonable increase in the corporate and top 5% rates.
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Dr. Krugman:
If what you say is true, what has caused the spurt in job growth and hiring then? No one hates trump more than I do, but our economy IS doing very well - at least for now. I'm not gullible enough to think trump deserves any credit, but what, then, DOES deserve credit? Is it the laws of statistics that blips like this will happen from time to time regardless of who sits in the Oval Office?
WHAT spurt is that, exactly? The numbers aren’t really up from the 2014-2016 period.
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@T3D: In 2014/2015, we had five consequtive quarters of GDP growth averaging 3.8%, but there was no preceding tax cut. If anything, that was a mini-boom related to investment in the oil/gas industry as West Texas oil prices rose to $100/barrel. We've now seen two good quarters of GDP growth that also correlated with a rebound in oil prices (that recently reversed). We will probably get more than 3% growth this calendar year, but that's not exactly conformation that the tax cuts have in transformed the economy in the ways advertised by the Republicans. Also, job growth during the final 21 months of Obama's administration was higher than the first 21 months of Trump's administration. Finally, the 3rd Q GDP figures showed private business investment stalling in August and September. This isn't what you would expect if the tax cuts had permanently changed business decisions.
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The real world is a little bit more complex than supply side economics thesis. Even if 1 percent of GDP was purchased for a $1 trillion increase in the debt, is that really a good deal? The trillion is on our kid shoulders and not Jamie Diamonds. After a bit up of asset classes which will trigger some level of inflation results in higher interest rates and the inevitable bust cycle. What was wrong with steady 2 1/2% GDP growth? Why can’t we just balance ur freaking budget and invest in infrastructure? I am all for repatriating the profits and for lower business taxes. But the bottom line as things are out of kilter from this tax cut which was crafted to benefit wealthy asset owners.
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It is going to be difficult to convince the trumpsters that the tax cut did them any favors. Going forward, the proof will be in the pudding. The deficits is mounting (no sign of a surplus in sight) and his minions along with the rest of us will be paying higher taxes in the many coming years to pay back the trump bump. Like everything trump does, there is a lot of bluster then.....fizzle, splat, forget, then throw out something new to divert the minions attention. It has been proven to work time and time again.
What is driving the excessive greed and severe maldistribution of income is the lack of enforcement of anti-trust laws.
Monopolies must be broken up, and anti-trust enforced, in all sectors except for natural monopolies such as water or prisons. And those must be heavily regulated by elected governments, if not solely government owned, to prevent exploitative pricing.
Countervailing powers such as unions must be strengthened.
We are re-creating the aristocrats and serfs of the Middle Ages with our ignorance of basic economics, and tolerance of concentration of economic power into fewer and fewer hands.
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@Terro O’Brien I was wondering if anyone else was going to mention this! Good point. "Too big to fail" almost led to another depression. Yet it's just accelerating. Be afraid, be very afraid...
Seems like when corporations are keeping money overseas in shell corporations there is a problem. Not clear on the Democratic Party plan was to solve this problem. Just because your the minority party does not mean you stop governing. A point Mr. Krugman fails to develop.
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A tax cut by republicans amounts to ‘doing one’s duty to one’s spouse’. I heard that line from an old timer, now long gone, as a teen. That line is baloney. Religious conservatives have used such beliefs for centuries to manipulate the rules and achieve instant gratification. They make it sound like a moral duty. It is sheer hypocrisy. Conservatives in america justified slavery on moral grounds.Milking the cow is ‘good for the cow’. I have heard that one as well. Basically, america is ruled by businesses allied with politicians. Trump is both-politician and businessman. They serve each other’s interests. Corporations and businesses want to avoid taxes, even altogether. They want regulations weakened so they can pass of the risks to others, and make more profit. They dont want to care about the environment or employees. Just do the minimum. They want barriers that will weaken competition and allow them to raise prices. Very little activity by wall street traders and senior executives is productive. The productivity is from assembly line workers , engineers, farm laborers, and applied researchers. Salesmen dont build they just try to sell. Traders and ceos reap the big profits.salesmen get a commission. The rest get a paycheck, and work for it since they dont know better. In essence it is how capitalism works. Trump and the republicans get large contributions from businesses, so they can bash immigrants, and run negative ads. They give the billionaires an ever bigger slice.
So, taxes are cut. We now (allegedly) have more income to spend... which raises inflation. So we pay more for goods, there goes our "yuge" tax break...
What is missing is not this constant problem facing Capitalism, but the problem with basic pricing structure.
If this is meant to be some kind of Meritocracy, how can republicans legitimately argue that wealth is created by hard work?
There isn't a person alive that can tell me Mark Zuckerberg works millions times harder than a millionaire.
A person making $20,000 per year is almost homeless. A person making $40,000 is middle class (without health insurance) - unless they get a $40,000 hospital bill. At $60,000 a person is doing well. At $80K to 100K, one can live well in the world. Then there are people who make that kind of money per hour? That's insane. That's a broken world when there are so many people on the edge of homelessness - who work 40-80 hours per week - but so many people who make ridiculous amounts.
Imagine for a moment if there was a cap: 100 million dollars, and then all extra goes to schools, for example, or employee salaries.
Oh, wait, we are to believe that will crush incentive. Republicans are trying to convince us that Bill Gates, Mark Zuckerberg, etc., wouldn't have gone into computers when they were teens if they didn't know they'd be multi-billionaires in the future.... HOGWASH! They did it because they loved it. The money wasn't THE incentive.
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This story of the fallacy of tax cuts offering major returns to the working class is so old it's growing moss. Unfortunately, as Mr. Krugman points out, it's impossible to convince Republican economic "gurus" like Ryan et al, that this is the case. The only answer is to keep Republicans away from the legislative power that allows them to continue to punish the rest of us with their delusions.
Maybe it wasn't quite a total fizzle. It turned my congressional district, which has been deep red for decades--most of a century--blue this year.
Message to the DNC for 2020: the voters here want their SALT deduction back.
2
Krugman highlights the foolishness in Republican economic theory but leaves out an important consideration in higher taxes on the wealthy. Higher taxes means the wealthy will invest more in the economy to reduce their tax burden. Lower taxes simply means the wealthy can feather their nest and laugh at the sycophants who admire them.
1
Paul, it is wrong to say that Obama raised taxes, he did nothing of the sort. Why do you say that Obama hiked taxes when he cut them, and cut them big time? Obama was a tax cutter.
Obama never hiked taxes, he let the Bush tax cuts on the top 2% expire and made permanent the Bush tax cuts on the bottom 98%. Obama in fact ended up in terms of tax revenue preserving 82% of the Bush tax cuts, permanently. Obama is one of the greatest tax cut Presidents in American history, as he made permanent the vast majority of Bush tax cuts.
I realize that the tax cut means nothing to you rich people, and I include you in that group, Dr. Krugman.
But it was very meaningful to me. I got $20 extra dollars per pay and I am grateful for it.
So don't talk to me about "tax cuts for the rich." It's ok with me if they got one too. I'm quite happy with mine, and I look forward to more/another from Mr. Trump.
@Kathleen880: Are you aware that the individual income tax cuts will expire in 6 years? Are you aware that due to a change in the method of calculating income tax band thresholds will cause your gain to evaporate within a few years (and increasingly erode your post tax income for as long as you pay income tax)? Are you aware that the Government will collect about 5% of GDP less than it will spend in FY2019 and that deficit could grow to 10% within the next decade? Whatever you gain from the tax cut in this year and the next few years will be lost many times over in future years, not least when you collect Social Security and government - funded healthcare. Your temporary $20 gain costs the Treasury little in the scheme of things, but there are others who have gained much more than you and who will not depend on Social Security and Medicare when they retire.
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"....it’s difficult to get politicians to understand something when their campaign contributions depend on not understanding it."
Why is that our system? Write columns on the huge ripple effects. Write how most voters and many office holders want campaign finance reform, but the media ignores it.
Private profit is exalted as the protector of our freedoms & engine of job creation. The big excuse.
Now do a whole column---and more--- on how the US turns its elections over to corporate mega donors who call the shots. The Court says big money is protected as 'free speech'. The effects ripple through all our laws---on taxes, health care, jobs, etc.
Write on how many other capitalist democracies use more public funding and limit private donations.
On how our campaign advertising on media is our biggest campaign expense. Many countries actually ban US style paid campaign ads on TV/radio to prevent special interests from dominating political discourse---says wikipedia. Imagine that.
We the Voters have little influence on law making for our interests, compared to mega donor influence- -per studies by Princeton's Gilens and Page.
Americans are dying as the gun lobby finances politicians.
And we're sicker and poorer as big insurance/pharma dictates health care policy for profit.
Ex President Jimmy Carter said we are becoming an oligarchy, since it costs so much to run for any political office.
Write a column on it.
1
There’s one place where wealthy individuals and corporations have been eagerly reinvesting their tax-break windfalls:the Republican Party.Sure,they’re destroying our country- but that rate of return they pay is so irresistibly lucrative!
The RP, in order to remain viable as a tribe, needs a raison d’etre. Without the magic of tax cuts for the wealthy (however empirically bankrupt that dogma has proven to be), plus deregulation, all they’ve got left to justify their existence is racism, miscogyny, xenophobia, homophobia, and love of guns.
Thanks, Paul Krugman, for consistently puncturing their relentless fallacies in the service of putting people last.
1
This Republican tax cut was, as Hillary said, doubling down on "trickle down". This voodoo economics is specious. Its foundation is riddled with rot because its core belief that corporations create jobs because of some benevolent "gifting" to the lowly workers is utterly false. A business, large or small, expands SOLELY because there is a demand for its product (or service). If profit is better spent on expansion, it will expand. I used to tell in frustration "what jobs??!!" Every time I'd hear the republicans cry "we must give to the job creators" during the recession. If 100% of that corporate handout (of the Republican tax cut) was instead directly given to the poor to mid-middle class they would spend almost 100% on their daily needs and any left on a car or appliance or other wants. THIS bottom up money is what drives jobs and expansion. But oh no, you can't give breaks to actual, real citizens, that would be a handout. OMG people, wake up! And the Dems better get this bottom up economics in their sight or they are going to go the way of their greedy, banker owned Republican coworkers.
1
The GOP tax cut was a purposeful manipulation to lower government tax revenues so that the right wing Republican Libertarians can shut down Social Security, Medicare, Medicaid, severely underfund the and effectively destroy the Consumer Financial Protection Bureau, the Environmental Protection Agency and a number of other agencies and programs that benefit the people.
The GOP is a special interest group that represents only billionaires and corporations and both the Supreme Court and Republican congressional actions put the needs of the 'corporate person' ahead of the needs of living people. They are nothing more than a cabal of corrupt liars.
1
You did not need to be a big time economist like you, to know their dumb tax cuts were going to fail again! At least giving the money to the middle class would have further increased non government spending temporarily and likely boosted the economy for a little longer. This economy is going to crash because of republican incompetence and lack of new ideas, the exploding deficit , the idiotic trade war we are doomed to lose(because our economy's transparency makes it easier for the Chinese to exploit) and the red state voters who will let the republicans keep control the senate.
It's not surprising that a corporate tax cut has done little to boost corporate investment, given that a previous and even more specifically targeted effort to boost corporate investment - the investment tax credit - was also a failure and was eventually repealed.
1
I think tax levels do have an effect on the economy. The effect is in the distribution of wealth. We had the most equitable wealth distribution in our history in the 50's, 60's, and 70's, when our tax bracket went up to the 90% level. With the 90% there is no motivation to have CEO's making 500 times the pay of the true producer.
YES LETS GO BACK TO THAT TAX SYSTEM!
The gop tax cut and increased defense spending are together a 2 trillion plus disaster. They have endangered the safety net. Trump and mcconnell have a strategy. It is to give away as much as possible to businesses so they and their business partners make immediate, huge, and irreversible gains. It is robbery on an unprecedented scale. With deficits getting worse and worse the democrats will have little to spend on health, education and infrastructure if they gain power. Then republicans can go back to their old game in the opposition-saying that spending needs to be cut on social programs. They are always ready to cut taxes for corporations and increase defense spending. Average americans are loosing more and more in government benefits in exchange for tax breaks that dont compensate for the loss of benefits. Corporations and ultrawealthy individuals are getting more and more.
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Well said sir.
I would add that it's worth looking at the share of US tax revenue paid by corporations vs the share paid by individuals, by year, since WWII.
The trend lines are unmistakeable, and both cause and effect of our current issues.
1
I've been a "serial entrepreneur" for 40 years - started a bakery in our home kitchen in 1974 and grew to 350 employees over 20 years and was always considered a community leader - we were very engaged in our community, supported many non-profits, paid people well, etc. We made a reasonable profit, never looked to maximize short term gain. Always driven by deeper human and community values and providing our customers fabulous desserts (chosen best bakery in San Francisco 20 years straight).
Today - it's all about maximizing short term profits at all costs and I'd characterize our economic system as "predatory capitalism". trump and Republican tax cuts were all about maximizing short term profits - period - giving another buck to billionaires - how did Sheldon Adelson make out? Customer demand is what drives investments and job creation - not tax cuts.
Paul K - perhaps you ought to do an easy to understand series (perhaps one week) on how our "predatory" system of capitalism works, how the Republican party has been lying for decades (way before trump) about cutting taxes and increasing deficits - it's all about giving their wealthy donors and patrons more money at the expense of everyone else. How often have we heard about the "perils" of "socialism and the redistribution of wealth"? As some understand, there has indeed been a massive long term redistribution of wealth from the 99% to the 1%. Perhaps it time for economics 101 for the 99%. The 1% clearly gets it.
2
As a CEO you are given the gift of lower tax rates and significant extra cash flow that you never could anticipate. You can buy back stock risk free (even independent of expected returns) and raise your EPS for sure or you can make marginal investments in capital (best or most necessary ones already taken) and hope it works out down the road. Very easy and obvious decision.
Stock buybacks were shovel-ready.
2
Stocks rallied on the indisputable realization that lower corporate taxes mean higher after-tax returns for investors, whether through buybacks, dividend increases, or productive capital outlays. But as expected by most business economists (and hedge fund managers) most of the benefit goes to the buybacks, which are easiest to implement. The only positive for the economy and markets right now is that there is lots of dry powder available to buy stocks now a cheaper pricing in light of the recent correction.
As for individual rates, the sugar went to the top 1%, with enough for others to keep consumption up short-term but probably not enough to expand GNP sustainably in light of rising medical insurance costs, higher interest rates, etc.
Thank you Dr. K.
Both for the lucid, fact-based arguments that most of us here are already in complete agreement with (because, well, decades of empirical evidence), and for the sly reference to Upton Sinclair at the end.
I read 'The Jungle' while in high school and consider it one of the books that has guided by beliefs and opinions ever since.
What about the Republican conservative argument touted by Mitch McConnell that the tax cuts will pay for themselves with an increase in GDP? If I remember correctly, he said that it has never worked before because we didn't wait long enough for the "Laugher" curve to take effect.
Thank you for everything. Guard your Press Pass.
4
...yes but it's even worse....the fizzle is actually a sizzle. The worsening income distribution is a brake on growth. The deficit is spiking and debt burgeoning to an estimated $1.7-2.0 trillion over a decade. This portends reductions in government spending, attacks on healthcare and social security and impoverishment of the middle class and poor.
The economic growth bump lauded by Republicans is transitory. Like going on a buying splurge by spending all of your lifetime savings.
The silver lining is that the GoP will be unable to shift the blame as they ramp up their efforts to reduce social safety net expenditures, infrastructure and other essential investments --and this will be highlighted by the House under new leadership and media. Republicans had no answer for their attempt to deprive Americans of heath care and it cost them dearly during the mid-term elections. It will only get worse.
It is all about the economy --nothing is quite so angry as a tax payer spurned...
1
Note also that in some industries companies are having difficulty finding enough qualified people to hire, complicated by restrictions on obtaining visas for high tech workers from abroad. Companies can’t grow faster if they can’t find the people to do the work, regardless of tax rates. Same too for housing construction and agriculture where a significant part of the work force, undocumented immigrants, have either stayed home or are being extra cautious about moving from job to job.
A major fallacy of Republican thought is a misperception of what drives true economic growth - sustainable expansion of productive capacity and employment. At bottom, this is a consumer-driven economy. Regardless of the amount of available capital, interest rates, or other variables, no prudent manager will commit to significant locked-in expansion cost without good evidence the demand will be there at completion. Getting more money in the broad band of middle-class consumers, and even more modest earners, is the best way to sustain growth.
While the consumer economy is motoring along nicely (continuing on the trend line Obama created), the tax legistation did nothing to stimulate that sector, and the tariffs will likely more than offset the meagre what benefits were provided. Trump did not aim to benefit the economy or the general population. The legislation was a thank you gift to big donors of Trump's and the congressional leadership. Trump crows about the economy. Actually, he has been President for only about 25% of a steady upward trend he inherited but has done nothing to advance.
1
The "modern" Republican Party has but one overarching goal: : Increase the wealth of the 1%.
Tax cuts have accomplished that, marvelously well. Increasing Defense spending, no matter how bloated the budget, is another way: it keeps many folks employed in service industries that serve massive Southern military bases--- keeping local votes secure because of the false "support the troops" rhetoric--- and it allows massive profits on super-expensive (and sometimes completely unnecessary and unwanted) weapons systems that are priced at will.
Though the absolute numbers may be comparatively small, the jingoism is worth its weight in gold at the voting booth--- and that facilitates all the rest.
Lastly, there remains the only unfulfilled means that has made Republicans salivate for decades: privatizing Social Security.
Now that Republicans have secured the first two, I look to them to try for the Holy Grail. Losing the House may temporarily have halted that inevitability, but 2020 could spark a renewal of W's failed pet project.
Cupidity, like rust, never sleeps.
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@northwestman
I agree with most of your comment, I believe the GOP will have a very hard time dismantling Social Security and Medicare. What most folk who are younger don't seem to understand is we as a people contribute to Social Security and Medicare in our working lives and most pensions take into account we will receive SS and Medicare.
This huuugee tax cut was a boon for the wealthy and corporations (I am not proud and will take anything to increase my cash flow) but the tax cut I received was about $12.50 per week. Most folk I spoke to received that or less. So this is a really great benefit ( yes sarcasm) for me.
The Republicans have always targeted what they call "entitlements" to help balance the budget hoping that most will never realize that that was what they paid into through their work life. That has reared it's ugly head again a few weeks ago. So to give most folk a very minor amount in tax breaks they will have increased the National Debt to 50% of the U.S. GNP with no plans to reduce the deficit. In addition to the above the income tax cuts for most will expire in a couple of years but the corporate tax cuts are permanent.
I find the the Republicans have shoved me into being a Democrat and that started when Mr Obama was POTUS.
Before that I voted for who I believed would do the best for the greatest number of us.
Our present situation of tax breaks for corporations and the 1% and the situation with tax breaks for Amazon have two things in common.
1-both are a form of extortion
2-neither will show any long term benefit
@george
The corporate tax cuts are permanent the individual tax breaks will expire in a few years.
Three more pieces of evidence to the notion that tax rates and policies have limited influence: temporary expensing of capital equipment was designed by Congress to frontload the benefits of the tax cut to Republican political advantage. Where's the evidence of increased capital spending? Not there. Then there's the increase in tax rates on the wealthy in the Clinton era. What happened? A healthy economy, certainly no downside to the tax increase. And, much as I liked many of the provisions and philosophy of the 1986 tax act (broader base, lower rates), it appeared to have little impact on new investment. There seems to be an asymmetry in tax policy: bad policy leads to bad results (e.g.the diversion of investment to tax shelters) but good policy may just be neutral with regard to economic growth, based as it is on demand and so many other factors.
1
Dear Dr. Krugman,
Quick question - if lower corporate tax rates in US result in some corporations returning a higher share of profits to US-based parent companies, won't that mean the US will at least recoup a larger portion of taxes on profits that would otherwise go to foreign government coffers? Or, does everything wash out so that there is little appreciable gain in overall US tax revenues, at least from corporate sources?
1
Dear Dr. Krugman: thank you for your always thoughtful articles. This one points out the basic fact that Industrial investment really arrives when markets show up. Not because of incentives (only). Presently, worldwide, probably the biggest markets that will pop up have to do with renewable energy and basically weaning us off fossil fuels. Most of the world understand this. That the US Government (not the US, because many states understand it) basically negates this reality is suicidal. It's a worldwide market, filled with opportunities, and the US stands to see it pass it by. American automobiles are mostly irrelevant worldwide. Not American trademarks. But US automobiles manufactured in the US for the rest of the world are a tiny fraction of that market. I certainly hope that you'll soon understand this. I know that you do, that most US citizens understand it also, but it's the Trump administration that's living in fantasyland. Yours truly, from Chile, Prof. Roberto Román L.
I recently listened to a talk given by Scott Rasmussen. Obviously a very bright man, but it made me angry that he is distorting reality by quoting facts while disguising the agenda. By painting a black and white picture of "free market" proponents vs. true "socialists," but acknowledging the many who supposedly want free markets to be kinder, he completely avoids speaking about the reality that Professor Krugman is illuminating. Nor do most people I know confuse socialism with unfettered free market dynamics only "nicer." We don't have free markets (corporate welfare is alive and well) and we don't have socialism. Yes, we do have people that want everyone to have access to quality health care. Rasmussen seems to say the incentive for change lies with with the citizenry, not politicians, but he still couches the dialogue in free market vs. socialism. This jives with David Brook's tendency to characterize the left as wanting the state to provide everything, and the right which wants as little government as possible. This characterization is old and tired, unworkable and misleading. Even his column today generalizes regarding old-guard conservative morality vs. today, implying that liberals, in contrast, were immoral and supported the continuation of the communist regime. More accurately, "liberals" want to support economic/social conditions that allow lower income earners to prosper through education, hard work and personal development so they do not need handouts.
1
While admittedly knowing little about corporations and capitalism in general, it appears there are few to no restrictions to the levels of greed we are seeing today. Is there a way to reward ingenuity and investment without widening the discrepancy and further damaging the common laborers being left behind?
Supply-side solutions are NOT what the U.S. economy needs. Reagan and Volcker's solution to 'split' the wage-price spiral to stamp out the stagflation of the late '70s-early '80s has been left in place for far too long. Tax treatment of return to capital has outstripped the tax treatment of return to labor for far too long. Our GDP has grown by a factor of 9 over the last 40 years (CAGR 6.1%) while median household incomes have only posted a CAGR of 3.9%. 2.2% difference over 40 years is A LOT!! GDP doubles every 12 years, incomes every 18. Who benefits from that delta?
Congress should roll back the FICA rate increases of the Greenspan Commission and return a savings function to middle- and lower-tier earners. It has served its purpose and built up $2.8T of funds to see the Boomers off the planet.
The taxation balance between money earned by money and money earned by work needs to be seriously re-thought. Our current path leads to immiseration of the masses.
1
For a long time US companies and unions went with under-funded, massive retirement plans. My generation has not paid its bills and has pretended to not be withdrawing from the earth's energy savings account every year. Demand for oil and even for wood tripled in my lifetime, as has the world population. An economic slowdown would be good for the planet, until government is valued. The alternative is true collapse. "Exponential growth inside a finite system leads to collapse." says Mr Science. 7.6 billion is evidently not sustainable, if you consider the finite environmental limitations. How will the herd be culled? I suggest free contraception. However it is done, good government is the solution but government has few fans. Remember, the crash of 08 was blamed on poor people buying homes they couldn't afford and over-regulation by government.
As a former CEO, I can tell you that something was a little screwy when it was better to put profits into the UK, than the US because of tax rates. You really have a lot of discretion as to how to structure yourself in this regard. I agree that there are so many ways to get the cash back that it is an accounting fiction but wouldn't a lower tax rate put more taxes paid back into the U.S.? If I had a choice of 18% in China vs. 22% in the U.S., I would clearly put as much profit into the U.S. as possible but at 35%, it was hard to justify. It will take a few years to unwind the structure that put money in lower tax jurisdictions but won't it eventually result in more taxes paid to the U.S.?
1
@Johnk
Prof. Krugman would like us to believe that corporations won't invest any of those repatriated billions. I'd say give it time. The first step is to stop chasing those dollars overseas.
A new investment project that yields a positive profit before taxes is still profitable no mater what the tax rate is. The tax rate just determines what fraction of the profit goes to the firm. If firms take all profitable projects, changes in the tax rate will not alter investment. The exact same argument applies for employment.
It’s possible to tell much subtler stories where it matters - allowing the firm to keep more money means they have more resources on hand to fund the next project. If you think most companies are financially constrained, this could be imprinted. But the reality is that big firms who account for most of employment and investment, can always raise the funds they need for profitable investments.
So we should not be in the least surprised that investment currently looks weak and there is no clear sign that this huge giveaway is promoting economic activity. Repairing the horrendous infrastructure in this country would have been a way better way to help the economy and encourage business growth. Lowering transportation costs, for example, would make some precision unprofitable investments profitable - and would thus boost activity far more directly.
But let’s also be honest. Nobody who ever sprouted these theories ever really believed them - it’s just an acceptable way to ask for a tax cut for the rich. Let’s just have that argument directly.
1
I've been making the following points this year to my colleagues:
In Jan. 2018 the NY Fed estimated the value of total US investment in publicly traded stocks currently as $ 98 trillion; the value of cash on the sidelines as $ 14 trillion.
Of this, the richest 1% owns 83% or $ 93 trillion. In addition they also own 90% of US govt debt or $ 19 trillion, bringing all assets (excluding real estate, corp. & municipal debt) owned by the top 1% to ~$ 112 trillion.
What does the bottom 99% own?
We own the national debt. $ 21 trillion, plus the unfunded portion of Social Security, Medicare and Medicaid to 2035, which brings the total to $ 50 trillion owed to fund programs vital to the American people.
We have suffered for 40 years under supply-side economics that has redistributed wealth upward. Unless Democrats can make the case for a return to demand-side Keynesian tax policies, and get voters to prioritize those changes, all of us-- Trumpers and non- --will continue to become poorer relative to the rich & to corporations, and political turmoil in this country will worsen.
I have friends who celebrate their $ 100/mo. tax cut. I argue that wealth is relative, not just nominal, and that they are falling behind because they don't realize that. We need to redistribute wealth downward, by raising tax rates to pre-1980 levels, i.e. 75% on income over $ 750K, for instance.
Recently, I've been reading Keyne's General Theory of Employment, Interest and Money. Everyone should.
2
Corporate earnings are up, and most corporations are owned by people. Employment and wages are up, and most jobs are help by people. So what’s your point?
2
The people who own the corporations are not the same people who earn the wages. And the tax cuts have not benefited the latter, only the former.
That's my point. Thanks for asking.
1
@TW Smith
His point is the same as always, that the GOP is wrong.
Corporations are NOT owned by The People. How naive you are to think that everyday people , the 99%, own $112Trillion. Corporations would never relinquish control of their babies to the Little People. Pension funds attempt to grow their fund through investment in equities however, they fail to ever get into the deep, dark black due to commissions and fees and kickbacks, ala, Chris Christie investing the NJ State pension fund with Morgan Stanley where his wife, conveniently works. The Little People are bombarded with ads telling them to invest throughnTD or E Trade but no one tells them the inside info where the real money is made. Don't get me STARTED!
Part of the continually failing Republican doctrine is that lower corporate taxes that result in growth great enough to offset the lower revenue is, of course, based on the Laffer Curve.
Assuming (and, for all the reasons you listed it's not a valid assumption) that such growth occurred, we only have one data point where lowering the tax rate resulted in greater Government revenue, and that was the Kennedy tax cuts implemented in 1964 under LBJ. But that was cutting a maximum personal tax rate of over 90% down to about 70% (I may off on the exact %). Other tax cuts have ALWAYS resulted in exploding deficits, and economic down-turns.
Why? The Laffer Curve depends on the idea that if you take 100% of earnings, people won't work and government revenue will fall to 0. And if you have NO taxes it will also be 0. Therefore, at some point, a tax increase must be SUCH a disincentive that revenue bends back toward that 100% rate and 0 revenue. But just where does it bend back? Again, we have only one data point possibly above that point, but many below it.
But like the honey badger, Republicans don't care and they just keep burden-shifting to the people who can least afford it. I expect McConnell and Ryan to push through MAJOR cuts to social welfare programs in this lame duck session, slashing MediCare, MediCaid, and SocSec, as well as critical regulatory programs. "Starve government till you can drown it in a bathtub!" while they turn away from Trump's law-breaking.
2
I live in Rockland County where property taxes hover around $20,000 for even the most modest home. (All homes have large lots .) For me Trump managed to push through a tax increase, no way a tax cut. I find that now my home and property are no longer affordable and I have been compelled to sell and move away from the home that was affordable before our great leader passed this tax increase ---that is, the $10,000 cap on deduction of state and property taxes. Most of Trump's programs benefit only the very wealthy---not the middle class.
5
@shimr
Actually, there are a few benefits you might experience:
1. Lower tax rates (tax brackets don't lie). Your reduced tax bill will offset the loss of those SALT deductions.
2. If you have children, for each you'll get an additional $1K (total $2K) off your tax bill. That's not a deduction. It's an actual tax reduction. There's a difference.
3. If you've been hit with the AMT, chances are you'll now avoid it.
Something like $60 billion was consumed by stock buybacks, and 200,000 jobs actually CUT by the big employers. Without new demand, no company hires new people...and tax cuts go into a new Mercedes or boat. That's how a real business is run.
2
So, it makes sense to me that if own a hamburger stand, whether I install an additional grill and hire an extra cook, depends not on how much money I have in the bank, but how much demand for hamburgers I need to meet.
If we would tax the rich and put that money into meeting peoples needs and repairing our infrastructure (read create jobs) there would be more money circulating to increase my hamburger business. And then we would all benefit (even the rich!).
I don't need a PhD in economics to grasp that.
2
Corollary to that: If your marginal tax rate is only, say, 15%, you might choose not to expand at all and just sit on your money instead. Maybe even raise the price of those hamburgers while you were at it.
At a higher marginal tax rate, however, you might have to hustle a little. Maybe even buy two grills and hire two extra cooks. That's how it worked in the Eisenhower years, right?
"Meanwhile, there’s no sign of the vast investment boom the law’s backers promised."
Conservative ideology states that lower tax rates lead to more investment.
This makes sense and it is probably true when tax rates are high, higher than what they have been in this country in a long time.
As others have already stated in their comments, investment decisions are usually driven by whether they make business sense. Tax rates would have to be extraordinarily high in order to cancel the benefits of an investment decision.
Another related question is whether companies are able to make wise investment decisions with the extra windfall. I ask this question based on my 40 years work experience in US corporations and as a small time investor. How many companies are out there that are actually growing?
My own experience is based on one company that promised growth many times only to stumble into mediocrity. There are many others in the news daily. Microsoft seems to be the exception. What about IBM, Yahoo, GE, etc. etc.?
All this fancy economic analysis for something simple. From the beginning conservatives, using think tanks and university funded programs, have been trying to overturn the New Deal and other social programs. Taxing the rich to pay for social programs that much of the population might want rides roughshod over the individual rights of the rich. The sad part is that the rich have been successful in convincing much of the population that those guys over there, you know your least favorite minority group, is getting some benefit at your expense. The end result is that at least some of the middle class is put in the position of identifying with the rich. The rest of the discussion as to high taxes do this, low taxes do that is just pointless.
2
@JC
A very rich CEO and his minion are at a restaurant having lunch. The waiter places a tray of a dozen or so canapes on their table as appetizers. The CEO promptly takes eleven of them and puts them on his plate. The CEO looks at his minion while gesturing at a person standing near their table "Careful" he says, "I think that guy wants your appetizer."
1
@JC: Lotto mentality gives all the players the notion they could be filthy rich after the next drawing.
What I find curious in Paul Krugman's article is the idea that the Republican congressmen and senators "don't understand" that the economic policy of giving more money to the rich doesn't work to stimulate the economy.
I would instead posit that they know exactly what they're doing, they're just giving more money to rich people, because those rich people can turn around and feather the Republican nest.
The (faulty) economic story they spin is just that - a cover story.
3
Cutting Corporate taxes does nothing for the economy because Corporate taxes are business costs that corporations pass on to the consumers resulting in higher prices for goods and services. Given that stockholders will continue to pay income taxes on their dividends & capital gains taxes on profit of sales of stock, we should just do away with the corporate tax. It amounts to less than 9% of federal income tax collected and would save billions in compliant costs.
1
Actually, corporations are the heaviest users of our infrastructure. Doing away with corporate taxes will mean corporations will get subsidized by our government even more then they do now.
1
@Fundad: The less corporations are taxed, the more comes out of their worker's paychecks.
1
Exactly. Despite what they may claim, businesses are in business to make money. Full stop. Creating weak incentives for them to behave altruistically does not cause them to behave altruistically. Government actors, like members of Congress, are supposed to serve the public. That is why I am always astonished that candidates promote their business backgrounds as qualification for government office, and they are never challenged on these claims. Our society treats businesses like gods who will solve all problems if they are given the "freedom" (i.e. no regulations and no requirement for any contribution to society) to do so. This country needs a paradigm change.
3
@ch
This paradigm change will have to include a new God to replace money, the current US Supreme Deity.
@ch: Government can do things business cannot because the payout is too distant into the future.
@ch
I see the same thing. One of the major reasons government had to regulate business was the profit motivation was greater than common sense.
So workers the environment healthcare etc all were the lesser concerns than profit.
They would not self regulate so government had to, then try to pull back some of the carnage.
It is and always has been about demand and creating demand. I never bought the argument that taxes at the margins matter much in the big economic scheme of things. If I can make a dollar and the government takes 30% of it, it will not deter me from working since I still make 70% (same applies to those who invent stuff - marginal rates don't stop them from inventing: Exh. A-- Intel and Microsoft in the early 80s). I'll be happier to an extent if the government takes only 20%, but it won't deter me if its 30%. I say happier to an extent since if others around me are suffering and it would help alleviate suffering I will pay more (but that is a philosophical position for me to pay more not necessarily an economic one).
I also believe in spinning money, and the more of it in the hands of those in need will be spent, creating more demand (see above). It's all about hitting the right sweet spot (like goldilocks porridge, not too hot and not too cold), but that is for the smart economists to figure out.
1
Tax cuts dont seem to be about business. They seem to mostly be about making the government smaller. I am against smaller government. Smaller government will just create an extra tax on everyone when the infrastructure and safety net breaks down. If people think they have it bad now just wait and see what happens when the government cant afford to do anything anymore. Poor people will be exponentially poorer and the cost of catching up and replacing broken stuff will be even higher than it is now.
1
I didn't know monetary theory was a secret. Anyway, I once saw this operation play out first hand. Raw materials procured in China. Product assembled in America. Product sold in Europe. Simple, right? Not on your life.
I once mapped the accounting route to the actual manufacturing process. The supply chain director basically told me to burn the document. The corporate business model was explicitly corrupt. The cost accountant even boasted he could find a job anywhere. That's internal pricing in action.
All this happened while the company cut US jobs and got a tax break for their efforts. They closed one operation in China so on paper to improve their US-to-China employment ratio. No one ever mentioned the fact that fewer employees were actually working in the US.
This is how tax incentives operate in real life. The company would have closed the Chinese factory anyway. As a result of tax incentives, they fired a bunch of American workers too just to save a buck. You can thank Republican tax doctrine.
4
Paul K - you are conflating repatriation (proven to not stimulate investment) with tax cuts. there is factual evidence, that capital spending will grow well into double digits this year, an acceleration from prior years, and that is attributable to tax cuts. How can you ignore these facts when you write an opinion piece? Repatriation is a different animal, and more a matter of whether it is ethical for the US Government to take money that belongs to shareholders
1
@Paul Krugman, you point out many of the issues with the tax cut but in my opinion you left out the biggest reason why the tax cut is actually significantly detrimental to the economy - the imposition of a very low SALT tax cap for deductions on federal income tax. Many people, myself included, of middle class means who relied on the SALT deduction in determining just how much house we could afford. My taxes go UP (as in I have to pay MORE) -- best back of the envelope calculation is about $15K. Friends in real estate have also mentioned that higher tax areas (aka blue states) are seeing price softening in the real estate market for this reason as well.
I've had to cut back to make sure I can afford to pay in April. And I'm willing to bet there are a lot of people for whom April will be a rude awakening.
3
@scubaette: The tax "reform" was contrived to punish states that didn't vote for Trump.
1
Tax cuts in the "trickle down" conservative philosophical theory became quite popular during the Reagan era thanks largely to it's greatly admired, very popular salesman, Reagan himself.
Ever since, Trickle-down became cut-to-invest and much like Trump's base, there has always been enough followers of this theory, to vote for Representatives to see these cuts through regardless of its obvious lack of sincerity and lack of proven fruition.
The economy is strong. Mr. Krugman's response is that once upon a time it was strong then. There have been other good economic times. But he leaves out what is impacting the people rather than some economic chart. Unemployment has dropped to the lowest jobless rate since December of 1969. There were a lot of men and women working for the army because of the Vietnam war. Also, a lot of workers were needed to make the things wars need. The number of unemployed persons has decreased by 270,000 to 6.0 million in 2018. unemployment rate for African Americans and they're youth is now the lowest ever. For Hispanics, the lowest ever. Employment rate for the handicapped is going up as opposed the rate going down before Trump. Small-business confidence is at record levels. Consumer confidence the highest in seventeen years. While Mr. Krugman is looking at charts and other information to support his opinion. A lot of other people are looking at pay checks rather than unemployment or welfare checks. Tax cuts are just one part of an economy but a very important part. So is having a job.
1
@Ron
Yes, Prof. Krugman essentially uses economic arguments to support his ideology. He can make these arguments -- and does very well -- however, he cannot defy reality which is that the economy is responding well to Trump. The burden, or should I say "yoke", of Obama, who was a regulation machine, has been lifted.
1
Sigh. First off, the prob is that you’ve not only shown no connection whatsoever between tax cuts for the wealthiest and jobs—you’ve ducked right around the whole issue. What’s Krugman’s argument today, again?
And of course, the other Minor Technical Detail that just never seems to penetrate into the heads of Trumpists is that tax (and regulation!) cuts under Bush gatewayed us into a massive crash, that tax increases on the wealthiest under Obama didn’t slow growth in jobs down one eensy bit, and that even a cursory look at the numbers tells you where jobs were headed at the end of Obama’s last term.
Cripes, can’t any of you guys read a graph?
Oh, and if you were trying to claim that Vietnam made the jobs numbers look better than they really were—just what is it that you think Trump’s dumping a whole sugarbowl of cash on the Pentagon does?
What happened subsequently is consistent with what was reported about meetings between industry executives and administration officials. There never was any real interest in putting the cuts towards improving the lot of the worker. The benefits were pocketed and put towards stock buybacks -- improving the reported numbers without needing any real improvement. Been a long time since the GOP had any interest in the working person -- save as a source of votes. Actually, the other folks are not any better, sadly. They all dance to whomever is funding their expensive campaigns.
What is sad, though, is that for decades we have heard the same tired refrains about tax cuts and making government smaller. And yet the benefits never seem to materialize -- and yet the beat goes on. More ironic, the conservatives who claim individual responsibility as a mantra, seem to be intent on using the power of government to force their views on others -- as shown all too clearly on abortion.
Maybe a revolution really is needed, since neither party seems too concerned with the good of the country -- just staying in power and grabbing what they can for themselves and their friends.
1
Krugman's points clear and the majority of readers' comments agree with his points, as do I. It remains a mystery to me why so many can't see the obvious, that a tax cut that favors not only the wealthy, but the 0.1% of those at the top with the tax cut. Corporations have changed and the cry for the stockholders and those in the middle to bottom of the income scale as taxpayers do not match up. I'm not sure whether to call it being hoodwinked or lied to. The result is the same. Curious how the entire Congress, mostly the GOP members but some Democrats, could vote for said "cut," but it happened. Where once you had people cringing over the debt, now willy/nilly, shilly/shally our fearless leader sends troops to the Texas border w/Mexico at a cost of what, an estimated $250-more million. How is that rationalized? What did moving the US Embassy to Jerusalem cost? A tax cut in the middle of a burgeoning debt/deficit? Keep going Dr. Krugman.
2
I run a small company. The decision to invest is always about meeting customer demand - it is never tax driven. I invest in new equipment to grow my business - not to reduce taxes. However, the decision on how to finance investment is often tax driven. What this means is that (in the past) it has often been very advantageous to effectively let the bank buy and hold title to the asset and lease it to a client company over a number of years.
The lease route works especially well because banks are usually short of tax depreciation to reduce their taxes, and so are able to make immediate use of accelerated tax depreciation. The banks' ability to use this accelerated tax depreciation is, in part, passed back from the bank to the lessee in the form of a reduced lease premium. Of course the bank also builds in an interest charge to the lease premium and a notional capital repayment. At then end of the lease the lessee will usually buy the residual asset from the bank for $1 and everybody is happy.
Interestingly, reducing the tax rates from 30% to 21% makes this form of lease financing a little less attractive, because the value of the accelerated tax depreciation received by the bank is (say 9%) less and so the pass back from the bank to the lessee is less to reflect this. So lease financing actually just got a little bit more expensive for small companies like mine. The bank of course still makes its profit.
4
Well, Paul lays out the flaws in GOP tax cut arguments. What he left out is that these arguments are not WHY the tax cuts were implemented, but merely window dressing. So economics had.not just little to do with it, but nothing. The billionaire powers running the GOP wanted a tax cut, so they got one. Simple, really, eh what?
7
No serious individual actually thought that the tax cuts (only for the wealthy as it turned out) would do any of the things the Republicans said it would. To discuss the act as if it might have produced any positive results for society but somehow just didn’t work is part of the deceit that Americans must constantly live with. The Republicans have done this before and it has never produced the results they claimed it would - and it never will. Reagan raised taxes even though Republicans pretend that he didn’t. If a science experiment failed as often as Republican economic policies, they would stop performing the experiment. In America, however, we are doomed to keep repeating the failure - and having journalists act surprised it didn’t work - yet again.
6
Aren't jobs created by demand?
If the tax cuts were on the low end of the economic scale, rather than the top, the recipients would have spent every nickle. Jobs would be created to meet the demand for vehicles, household items, more and better food and education. Personal debt would be reduced.
Obamacare created demand in the health industry by injecting government subsidy. Medical services expanded.
Republicans hate this because millions of people have better health, government subsidy actually works, and their donors tax payments shift away from corporate welfare.
4
One of the key points here is the one about monopolies, which have 0 incentive to invest when taxes are cut. I do wonder whether we see a larger effect from tax cuts looking only at small enterprises? Is progressive taxation of businesses a good option there?
1
Dr. Krugman, do you think our business model where managers have a fiduciary responsibility only to shareholders is at fault? Shareholders are not the only stakeholders in many other countries including Europe and India.
3
no true Paul, "Why Was Trump’s Tax Cut a Fizzle? The G.O.P.’s only legislative achievement has been a big disappointment." the outcome is your perspective of slashing revenue, as in 'starve the beast.' To quote Wikipedia: "Starving the beast" is a political strategy used by budget hawks to limit government spending by cutting taxes. The term "the beast", in this context, refers to the United States Federal Government, which funds numerous programs and government agencies using mainly American taxpayer dollars."
3
Americans have been brainwashed to accept the idea that tax cuts will help the economy. They never notice what doesn't materialize because, by the time the next election rolls around there's a talk of a budget deficit and what will have to be slashed (usually programs that help the average American) to balance out the spending done by the Democrats. This is how the GOP escapes the blame for the deficits that they create.
Tax cuts do not help the economy or us. That money that we get back ought to be put into the infrastructure (which is in dire need of improvement), Social Security, basic research, education, the FDA, the NEA (yes, we need arts), real job retraining programs that will enable us to find jobs if our skills are no longer applicable, etc. Instead of doing its job our government, courtesy of the GOP, caters to its rich donors. There's price to pay for this and it's not pretty. One of those prices is losing power and the other, more important one, is the complete loss of trust as we watch our elected officials continue to make and pass laws or tax overhauls that ruin our lives.
This overhaul did not benefit the middle class at all. It was designed for the richest. It was set up to benefit corporations that don't hire or pay or train Americans. Why are we rewarding them with anything?
9
To state more simply what Mr Krugman has said with his inimitable style & detail: If we find a way to increase the money in the hands of the rich, they move money around & reinvest for higher return often overseas. If we increase the money in the hands of the less fortunate by higher wages or lower taxes, they spend it on things they needed & were doing without, thus stimulating the economy. Companies don't expand because they have more money in their hands. They expand because there's more demand for their products or services.
2
Clear articulation of the key points, as always! One point that deserves a bit more explanation is how the so called investments in low tax regime countries like Ireland are mostly accounting maneuvers. Can you elaborate with an example or scenario how this may be going on? If it is illegal - simply cooking books - can't audits detect it?
Thanks again for a great piece.
While I hear you're saying that the whole argument is truly a fiction, when I hear the argument that money flows to where the lowest taxes are, am I wrong to think, woe are the wealthy who actually move their wealth, and/or themselves, abroad?
Where exactly will people place their money? What country with truly lower effective tax rates offers the security and stability provided by U.S. law?
Isn't there a reason that the U.S. can borrow money so cheaply, because ultimately the wealthy know that its the only true safe investment?
Taxes are the price we pay for civilization, or so the saying Conservatism has effectively become Neo-barbarism, where the vandals come into government looking for things to loot.
The whole idea of ROI has become perverted towards treating the world the way an extraction industry treats an oil field or an ore deposit: extract the maximum value from it while externalizing the costs to others.
The rate of return is much higher than proceeding sustainably would be - but sustainability is not on the agenda. The whole idea is to extract as much 'value' as possible, and then move on to the next Big Score.
The problem with that should be obvious. After they finish looting America, where do they go next?
It's funny how the party of Ayn Rand does not recognize that they are the looters she wrote about in "Atlas Shrugged" - but then as she pointed out, they were very good at avoiding reality whenever possible. (As was Rand.)
Taxes fund civilization; civilization provides order and wealth. It's not rocket science.
To use another metaphor, Republican insistence on cutting taxes is like throwing a feast using the seed corn that should be set aside for future crops. Republicans don't believe in the future - only what they can grab here and now.
Neo-barbarians - that's what they are.
4
This is why Republicans -- with notable success -- label Democrats as "tax and spend." By the time the Democrats get back into power after a Republican turn at the levers, there is no way to get the economy back on track other than a raise in taxes.
If Democrats were more unified in their message, maybe they could sell voters on the notion that Republicans are "borrow and spend," and that they, the Democrats, are "pay as you go."
4
Yep, I am just not hearing a significant change in the Democratic party's messaging.
The only effective mantra (George Bush was a master of this): concoct a good meme and bang out that message every chance you get.
I like "Borrow and Spend" Republicans as a start.
1
This makes me feel much better while I wait for the attacks on Social Security and Medicare that Republicans are planning as a way to address the deficits this tax cut is intended to create.
3
The other bugaboo is of course the negative effect on US debt being left to future generations. Like fiddling while Rome is burning. Unfortunately, individually people think tax cuts are a good thing and tax hikes bad. But collectively, little can be achieved without sufficient government revenues to pay for defense, infrastructure, health care, etc. In Canada, people shrug at higher taxes as a necessary evil for our safety nets like universal heath care and civil society.
This is a great article, but it seems to me that you have to keep reminding people of the bottom line here. All that money thrown away on a “fizzle” means we are effectively a poorer country—one that can’t afford infrastructure, education, or even an appropriate response to the opioid crisis.
5
So what you're saying, despite the classic New York Times misleading headline designed to provide talking points to those of various political persuasions, is that the tax cut has done exactly what it was designed to do: shovel even more money to corporations and the already-far-too-wealthy.
And that Republicans have, again, spent four years enmeshed in a massive and intentional campaign of lies directed at exactly the people they claim to be most eager to help.
People who dutifully believe this economic pap because they are desperate, and because the party that seems at times really to want to help them out has been, as always, gutless and afraid to offer any meaningful relief or justice to the Americans who need it most.
In this way, while Republicans are crooks and con-men boundless in the depth of their self-interested perfidy, Democrats are readily identified as uncaring co-conspirators who will not win anything really meaningful until they man[sic] up and do something useful.
Thanks for that, um, reintroduction to reality.
1
After reading Paul's excellent explanation and some of these brilliant comments…no sarcasm to be read here…I find it hard to believe that we make it so difficult for ordinary people to enter the United States and begin to rehab the lives they had stolen from them in some God forsaken land where human life is nothing but the casting for an interminable snuff film, all the while paving the way for a few … 5?… "families" to gobble the cream and most of the buttermilk while dripping or trickling or whatever bodily function they ascribe to what they do while sitting around waiting to die.
Sorry about that run-on but I thought it flowed well enough and if you weren't grabbed by it enough not to notice well, breaking it up for convenience was not worth a sous.
Maybe we should just reduce all the sentences er, terms of office to two years and limit them to a total of six years with any campaigning done on their own dime and time. That's what the new life blood of this nation's young dudes and duchesses have to do to get started.
It is the depth of incredulity that people consider it not only acceptable but expected that this fraud occupying the White House expects us all to pay for the jet fuel for him and his entourage to do personal business. Where is that written down?
1
Why does Krugman call it Trump's tax cut? Doesn't he realize that it isc congress, not the president, that creates the laws of this country? Maybe he missed jr high civics class the day this was taught. But wait, the times says everything is Trump's fault except the good things.
Ok. It’s the Republicans’ tax cut. Better?
I think people base their choice of who to vote for, not on what a particular candidate or party has done for them in the past, but on what lie they've decided to believe about what that candidate or party will do for them in the future. It seems to apply to both parties. The Democrats set a path to recover from the Bush recession and also made health care insurance much more available and affordable, yet, in the words of Obama, they got a shellacking. Now, even though the Republicans didn't screw up a booming economy, they got a shellacking. For the American voter, its where they believe we're headed that determines how they'll vote.
Paul you didn’t mention the possibly huge negative effect that the tax gift to corporations resulting in a temporarily overheated economy, resulting in a long overdue hike in interest rates might have on the already overheated and overstretched corporate bond market. There have been a few scary scenarios batted about in The Financial Times on forecasts from Wall Street gurus such as Paul Tudor Jones. The decade long era of zero bound rates produced little other than the opportunity for corporations to load up on debt for acquisitions mainly I’ll timed or having negative consequences for everyone except the key executives or to buy back their own shares as you pointed out to pad the paychecks of America’s corporate elite.
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It was a scam. We get that the Republicans don’t give hoot about the 99%, so the only advantage they could give the 1% is this goofy tax cut? The tax cut represents, above all, the absence of ideas in the Republican party to do anything positive for anyone. The perplexing question of our time is why do Americans vote for any Republicans? Even in the most recent election, Republicans should have been completely wiped out. What would the Democrats have done in if they were in the Republican position? Remember, Clinton pushed through NAFTA, which effectively ruined most manufacturing unions. What exists now is the absence of voter pressure for American improvement. If Americans will vote against their self interests, democracy is a failure.
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Donald trump is the President of the United States for one specific reason. The "electoral' college an arcane mysterious provision in our election laws that no other country has. Donald trump did not win the popular vote, in fact he lost by 3 million people, yes people, lets start to please associate votes with the humans who cast them. More Americans did not want Trump to be president than wanted him. This fracturing of the country is now being seen in red states themselves. Red States like Texas where Cruz, using every dirty trick, including racism, barely squeaked by, the same can be said in Florida, where 8 million people voted and candidates are separated by a few thousand votes, when again voter suppression and all other kinds of dirty tricks were used. The tide is turning for Trump and the republicans who are now accountable fittingly by 'the Peoples House.
Without the electoral college Trump wouldn't have had a chance in 2016, and would probably lose by 10 million votes in 2020. The republicans don't have the numbers, and that's with a booming economy. Those tax breaks for the rich, led to a federal budget that is 779 billion dollars in the red for 2018. It will be a trillion dollars in 2019. All because of those tax cuts.
The worst part for Trump is that people are beginning to tune him out, even the red state people seem to be getting exhausted. The writing is on the wall for Trump, and his supporters are getting ready to jump ship.
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Should Democrats argue to change the tax law so that the wealthy pay more? If I remember correctly the top tax rate was reduced by two percentage points. The bottom rate by one percentage point. I was amazed more people didn’t notice and scream bloody murder since the big lie about that law was that it would benefit the middle class. To me, that imbalance revealed another tenet of conservative fiscal dogma: thou shalt not do anything that would result in wealth redistribution, or even the appearance of wealth redistribution.
Lowest levels of unemployment - what you claimed was 'impossible' GDP growth - all things being equal - I would classify your prognostications as a 'fizzle'.
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I wonder why the tax cut was not an electoral winner if it had such a great impact on people’s lives?
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@Politico
Because democrats lied and said the middle class didn't get a tax cut. They did.
Also let us not forget economics 101. Tax cuts will not help an economy already very robust, No more than eating much more than you need, will make you healthier. Our large debt is partly the result of large government debt created to counteract the great recession. What is needed now more money to role into the treasury to bring down the government debt that helped revive the economy. Keeping taxes the same would have done that. Tax cuts will not help our economy, no more than taking a statin with that extra helping of turkey mashed potatoes and gravy this Thursday.
There are certain memes in this culture that are just baked into our DNA---or in the case of taxes--baked into the business mentality. One of those memes is the belief that all taxes are bad---government will waste the money---and the other belief---I have right to keep ALL the money I earn---ALL of the money. So, no matter what the research says---any tax cut is considered good and a tax hike is bad. This meme by the way does not exist in other countries where they see value---in various public services---for the taxes they pay.
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The gilded tax cut was not driven by economics - it was driven by greed and political payback.
Anybody who believes that corporate tax cuts and tax give backs to the 1% will help Joe The Plumber has been watching too much Fox News and Pat Robertson.
Supply side economics is a con job and the regressives just can't seem to stop drinking the Kool-Aide.
Essentially we can conclude that the Republican Party is definitely fact averse. Furthermore, I would posit that they’re just plain old mean.
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It's difficult to take seriously anything Krugman writes, especially when he starts his columns with massive, inaccurate generalities like "Last week’s blue wave means that..".
There was no blue wave, just the standard minority party gains. And good luck explaining to those with larger paychecks that the tax cuts didn't work - especially when the company states that the reduced tax rates were the reason for the increase in take home pay.
Dr. Krugman - maybe look at one of these companies that publicly stated that the tax cuts affected salaries. See if they're wrong, see if they're blowing smoke.
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Call,me cynical, but perhaps the real rationale for the crazy tax cuts was a gift to the Republican donar class, designed to build a firewall of dark money and direct campaign contributions ahead of what is traditionally a dicey mid-term election. And it perhaps succeeded. Without the vast blanket of negative dark money ads spread across the country the democratic blue wave would have been much more substantial.
Your last sentence hits this point on the head.
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"Unfortunately, it’s difficult to get politicians to understand something when their campaign contributions depend on their not understanding it."
Well, it was nice knowing you. I can now turn off the news in every form. This P. Krugman sentence precisely sums up the state of things. Until we get the money out of politics, nothing's gonna change.
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As a regular commenter from the center-left, or left-center, I support the reduction in the corporate tax rate but only with the proviso that all profit is taxed without the cornucopia of exemptions and deductions that bring the effective rate down to zero for many large corporations.
It makes sense for the US corporate rate to parallel that of the rest of the world as closely as reasonable. It makes no sense for wealthy, profitable corporations to pay no tax at all.
In his column, Dr. Krugman wrote "... it’s hard even to see it in the data ..." I thank him deeply for refusing to split that infinitive. Very few writers of the English language, including in the New York Times, observe that grammatical rule anymore.
It was a pleasure to see PK writing right. Keep up the good work!
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The right wing has convinced a large number of people that the rich pay too much in taxes and if they ever become rich they will too.
Reaganomics fizzled. Republican tax cuts for the wealthy, history shows, will never produce the results Republicans say they will.
There is that definition of insanity about doing the same thing over and over again and expecting different results. So are Republicans insane or do their donors buy insanity?
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Contrary to Republican’s public dogma, corporations are not motivated to increase their number of employees, or even upgrade their equipment, unless their is a direct and measurable increase in profitability. Every first-year MBA student knows this (in fact, I think this is one of the pass/fail questions on the GMAT).
When the tax cuts were announced, I asked a friend of mine who is a VP for a very large railroad whether they would be buying new rail cars, laying new track, hiring more workers, or increasing worker salaries. He laughed, adding “We are already sitting on more cash then we know what to do with. We will probably just buy back some stock and bump up executive bonuses”.
The Republicans knew what they were doing and what the effect would be, and they got exactly what they wanted.
So, no, Paul, the tax cut was not a “fizzle”, it was a roaring, deficit busting success.
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Younger had to ask this question. It was a heist to give more to the super rich, many of whom did not really want it.
What is going to happen to all of us little guys here in NYC this year with no deductions for our city and state taxes? I have been informed that I basically get a 20% tax hike. How come you are not writing about that?
How about some pain for the debased's base? When are the effects going to kick in for them?
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A few times a week, the Pied Piper of Fake Economics comes here with words to please his Progressive following. Mr. Krugman is always eager to point to things which haven't happened yet--and to ignore things which have.
Things he prefers to ignore?
--Regulatory reform is creating a much better environment for business. One obvious benefit--the U.S. is now becoming energy independent--and a net exporter.
--We have had 2 consecutive quarters of very strong growth, 4.2% followed by 3.5%. I will make a wager with the Pied Piper--economic growth in the 4th quarter will be above 4% again.
--Our unemployment rate is the lowest on record--especially for certain minorities. We now have more jobs than workers to fill them. Perhaps, if we had a functional education system, to train students for real work, that might change.
--Wages are rising above 3%--with competition for skilled labor.
--Both consumer and business confidence are at all-time highs.
But what Krugman really avoids addressing is timing. He will not admit it takes time to repatriate funds and put them to work. Most businesses and individuals have yet to file a return under the new rates--yet Krugman has been proclaiming tax reform a failure since a month after the bill passed. Ironic--he argued Obama's stimulus program needed more time to work--but tax reform gets no such consideration.
Keep rooting against capitalism, Mr. Krugman. It'll make you wrong every time--but your readers will love it.
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@Jesse The Conservative --Regulatory reform is creating a much better environment for business.
The zero-sum game promulgated by Trump and the Republicans then dictates that gutting regulations means a much worse environment for actual real human beings with their well being, health, finances, land, and water are all sacrificed to create more profits for business.
Fewer legal protections for people, fewer legal protections for the environment in which they live may help companies but We the People are not companies and thus still deserve "a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,"
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@Jesse The Conservative
It doesn't take a genius -- economic or otherwise -- to realize that the excess labor pool is shrinking. The good news is that those males who disappeared from the job market (and from Obama's job statistics) are now re-entering it.
A tighter labor market is a good thing for salaries. Retailers are now hiring people sight unseen from interviews over the phone.
Yes, the job market is improving. Yes, Prof. Krugman will pull out every chart to prove otherwise.
And just wait until Americans file their tax returns in early 2019. The big lie about the middle class not receiving a tax cut will be disproven. That's the real middle class, by the way, those who don't make NY or CA salaries and who pay, on average $3,500 in property taxes.
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Jess
Well, well. Look who's mindlessly pro-money...
Jess, coupla things:
Our unemployment rate is indeed low. How 'bout we take a look adjunct measures of little import like the poverty rate, the rate of bankruptcies and foreclosures, the gap between cost of care and access to healthcare, people priced out of the education "market", things I don't imagine cross your mind.
As to your implied juggernaut combination of decreased regulation and energy independence, it is not without dour consequence.
Depletion and pollution of our single biggest aquifer, for example. How much cash, do you think, will it take to keep cows or (less critical, I know) people alive without water to drink?
Or the death of individual freedoms you folks appear to fetishize, yet gaily abandon at every opportunity. Why, for example, should I be forced to allow fracking on my suburban estate? In Ohio, as in many states, I will be.
But mostly I am curious about the death of history and your keen enjoyment of it. Why, when income was taxed at, oh, 90%+ did America enjoy its greatest burst of innovation, education, global influence, peace at home, and decreasing income equality and all the ugly baggage it implies?
Somehow your aversion to taxes looks increasingly like mindless self-interest.
On a not-strictly-economic note, how is it you can crow about unfilled jobs and continue yapping about the destruction immigration (legal and ill-) will visit upon us?
A man of contradiction, you.
Republicans will find out another excuse I mean, "reason", to lower taxes to the rich, increase the deficit when they are in government, and condemn it when Democrats are, and cut what they call "entitlements": the law of the jungle with these dudes.
Economics used to be excuse for these guys, including the headless "Libertarians: and their foolish "Austrian School" of "dis-thought."
With the Republicans it is not the government for the good of the people, only for the welfare of the billionaires.
By now we all know White House promises that 70% of the corporate tax cuts would go to workers were so much hot air. American corporations spent a whopping $473 billion on stock buybacks and dividends. That's good news for those invested in the stock market but no help to the rest of us suckers. And the Economist reports the stock market too is beginning to take a hit because of Trump's trade wars. Farmers are already suffering a 98% drop in sobean exports to China and a 31% drop in pork exports to Mexico. The average farm in Illinois is expected to lose $70,000 this year and many expect to go out of business. And Trump is using $12 billion of our tax dollars to try to bail out the farmers his trade wars are hurting the most. Way to go Mr. Dealmaker.
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WRONG! Of course Mr. Krugman's analysis is, as always, right on but the initial conclusion of the piece is flawed. Trump will not go into the 2020 election with only the tax cut as a major "achievement", because, as you know the Dems predominate in the House and they will initiate bi-partisan legislation beginning with prison reform and infrastructure and ending who knows where which will immediately be appropriated by Trump as his successes. Dems, who care about people, will put aside their differences for the benefit of the nation and play into Trump's hands (small as they are) and provide him with electoral propaganda which appeared only because of the blue wave.
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I don't know why Paul Krugman, or anyone for that matter, would label this a Trump Tax Cut? Trump has had absolutely nothing to do with anything that has happened during this presidency. Trump is far too stupid to actually run a government, appoint judges, or drive policy. Anything accomplished during this presidency, with the exception of immigration policy, has been driven by influential republicans like Grassley, Hatch, McConnell, and Ryan.
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Albert Einstein once defined insanity as doing the same thing over and over again and expecting a different result. Pretty much explains Republican economic policy.
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The Trump tax cut did indeed accomplish big things. It succeeded spectacularly in increasing the deficit. In the twenty-first century Republican doctrine has it that, in the words of Dick Cheney, deficits don´t matter, but only when they are engendered by Republicans. On November 6 the electorate expressed it´s disagreement with that bizarre notion.
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Question. Why do the conservatives never learn the obvious. Tax cuts to the wealthy just give them more money in their pockets and in my 80 years I have never seen the advertised tax cuts do what they advertise. It's like buying one of those bath seats Mr. W. was selling along with other stuff of that ilk. People keep buying; the product keeps never living up to "as advertised."
Also, it's funny how much fuss some people make about the deficit when the Democrats are in, yet make not much noise about it when Republicans are in. The figures I've seen lately are astonishing. Maybe I should join the "what, me worry" gang.
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I think the problem is that the way we approach economics is, apparently, ludicrous. Holding up a year's worth of data on x factor and thus concluding that the factor thus, even in theory, will unequivocally, always have the same result in the future, is an asinine position. You don't need to understand a thing about economics to know why it's silly.
I am cynical about the effects of cutting corporate taxes as well, but it would be nice if the editorial at least acknowledged what the "other side" might be. One sentence, maybe? And increasingly I wonder why I am having to ask about the "other side." Why are there "sides" in news reporting, even editorials? Take a side on a position, but that doesn't complete mean omission of phenomena you wish didn't exist.
Surely there is SOME at least theoretically positive net economic impact of cutting corporate taxes? Certainly SOMETHING -- eg business sentiment -- is being positively impacted?
I have a feeling a giant tech-fueled disrupter will be coming to the new media that will make such sharp stances seem archaic in short order. Or, at least, one can dream.
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This economic theory, that tax cuts for the wealthy and corporations do not, in fact, trickle down to the working class, is known to most Republicans who argue for tax cuts.
Their primary focus is getting working class white people to vote for these windfalls for the wealthy.
This is how we got to the white supremacy of Trump.
When Ronald Reagan created his 'welfare queen' myth, he did so to get white working class people to believe that social programs like funding of education and anti-poverty programs, were only benefitting lazy black people.
Every few years Republicans have had to expand these myths to convince working class white people that 'others', people of darker skin color especially, were taking jobs from white people or stealing their hard earned tax dollars to live off welfare.
Republicans' employment of religious right zealots appeals to the same demographic. Same with their embrace of the NRA and their phony Second Amendment 'religion'.
Trump's racists rants, from Birtherism to "they're sending criminals" is all an evolution of this tragic endeavor.
Both Lyndon Johnson and Nixon knew that Republicans could grab the South by convincing all those working class white folk who traditionally voted for Democrats, that African Americans and their burgeoning equality were the real danger.
This way tax cuts for the rich weren't even on their radar.
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It has been a completely predictible fizzle if you expected stimulus. If you expected it to bankrupt the country and justify the sale of federal assets to conman Trump’s friends for pennies on the dollar then it has been a great sucess.
The most destructive force in our country today, the unmitigated greed of the GOP jesus trumpists....
Why is it that when liberals and progressives discuss the Trump tax cuts they always fail to mention that we lay people also received, albeit a weak, 3% cut. I saw my pay check increase due to such tax cuts and I have also seen my pay and benefits increase because my boss received a tax break. Now I do believe that anyone making less than $1,000,000 should pay essentially 0% in income taxes. But still don't forget that my wallet is fatter because of Trump. Thanks.
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@Chandler Stepp
They are peddling a narrative that the middle class didn't get a tax cut. Tax tables don't lie. Democrats do, however.
Sorry. I am just waiting for the other shoe to drop. Unlike the 1980s, where the last of post WWII wealth was in place to kind of shore up Reagan's disastrous tax rape, now there is no such bedrock.
I am counting the months, weeks, days, until this all collapses in some form. The GOP is right now agitating for cuts in necessary services. We are in a worse place the we were during Reagan, since half the population now has zero knowledge of say, 1932 onward in this country.
The Millennials ultimately probably will vote as socialist as they can. Many already know supply side has made them paupers for life.
What do you call the handout to Amazon.com by Governors Cuomo and Northam? They are just as bad as Trump. Another handout to the richest guy in the world. Pathetic. Fix the subway, Metropolitan Transit and the Port Authority.
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The tax cut let Sheldon Adelson write a huge check to the RNC without noticing since his tax "savings" was even greater. As a bonus for his largess his wife will now receive the Presidential Medal of Freedom. What a deal.
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It is not they do not understand. They just do not care and will not as long as fools keep voting them in office.
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Just another chapter in the Trickle Down Book of Myths. Still Laffering about that one.
Trump gave the Middle Class a tax cut?
Last week's blue wave was also progressive. Watch...Dr Krugman, you will realize soon that people were indeed ready in 2016 but you kept telling them, go moderate, go to the center. Head slap. My kids who worshipped you, gave up on you, Paul. They said how can such a man who claims to be conscience of a liberal, just does not understand the real and actual sentiments of the entire country especially the youth! Go Figure, hipsters in their 60s don't always understand what the 20s and 30s really want for their future, it is clearly a disconnect. Oh well, you are welcome to travel around the country and see for yourself how progressive causes drove people to vote, they got off their butts and actually went to polling stations nationwide.
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Most of us understand the tax cuts are a scam–or if not, that the average person is not getting ahead. So why would anyone other than the very wealthy vote for a Republican? Because Republicans are also selling the lie of a meritocracy while simultaneously race baiting.
Corporations are nothing but liars. Never believe corporations and you will be happier. Including those you may work at. They have zero loyalty to you or me and will fire thousands, at will.
Also corporations are full of ignorant right wingers who have no ideas, corporations are a desert of new and fresh ideas. It is all lies about tax cuts to grab a few quarters of fake 'growth'.
"What drives such investment is, instead, perceptions about market demand."
Wait. Wut?! You mean to tell me that businesses try to determine what is in demand and then they make decisions about what to supply? So, it's some sort of... supply... and... demand... kind of thing?
Wow! And all this time since the birth of ReaganJesus I thought that starving the treasury of revenue was going to make all Americans rich.
Mind blown...
The definition of insanity is doing the same thing and expecting different results. Einstein
RE: "money flows to wherever it gets the highest after-tax return. They pointed to countries with low corporate taxes, like Ireland, which appear to attract lots of foreign investment."
If all you care about is investment than that seems to be true and it matters little, except for how secure it is and how much you earn on it after taxes, where it is.
But when people speak about lowering tax rates in order to keep or attract their operations in a country than what this thinking does is to commoditize countries as if the only thing that differentiates them is there tax rates. Naturally large corporate entities will say "Hey, we get a better deal in XYZ and we'll take our jobs there unless you can get lower rates for us." In which case the politicians turn around say "See, we have to lower our rates to compete with the world."
Corporate manipulation commoditizes countries as all being the same except for their tax rates. Except they are not. There are advantages to being located in the US that other countries cannot offer. That was recently demonstrated on a more local level by the decision at Amazon not locate where they got the biggest monetary deal. Countries, locations, are different and have value to companies. The US should not sell ourselves short and buy into the commoditized country approach. The US as a location has value. It should be recognized.
For openers, what happened to the recent promise of a 10% tax cut for the middle class? Just another campaign effort to get people into the voting booth? Probably, so don't count on it. Then there is the uncertainty of how much the 2017 tax cut will actually benefit low and middle income folks when they gather up the records and file in April, 2019. Changes in withholdings earlier this year were modest, but will they hold up when deductions that were eliminated are factored in to our final tax bill? Finally, what will be the impact of all of this when our grandchildren are paying the interest on the ballooning national debt. That, of all of these unknowns, is the most troubling.
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Spot on, as always. There are essentially 2 business investment drivers. You point out the first here, "What drives such investment is, instead, perceptions about market demand". Meeting demand is always an important goods manufacturing business rationale - but, it's tricky to have lots of confidence in the future. However, you've failed to mention the 2nd investment driver - productivity (usually the euphemism for few heads). People reduction is the gold standard for business investment decisions. Taxes, as you've pointed out, aren't a consideration. Understandably, the newly crowned populist GOP would hardly sell corporate tax reductions that also reduced employment.
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The free money that Gang GOP gave corporates, 1%ers, and the First Family (choking on that last one), has to be paid for. Corporate buybacks have artificially inflated the stock markets. There is no trickle down. Labor wages had to increase to pay for all of the inflated costs of EVERYTHING we consume. No one, anywhere, pays what we pay, except maybe power, which we use to much of. Corporate welfare has to end.
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Excellent, spot-on column, as always. And equally excellent reader comments. Don't we love NYT?
My comment is this, said as a retired CPA/investment banker - it's mostly about EBITDA. For those unfamiliar with the lingo of finance that's "Earnings Before Interest, Taxes, Depreciation and Amortization", which is the first-cut approach to analyzing incremental investment options. So, taxes don't really enter into the equation unless the project is otherwise viable, which is primarily a function of incremental demand creation. Then taxes enter only when alternative means of financing a viable project are to be considered, that is, with debt or equity, or some combination thereof. What's been happening since the tax cut is a "relevering" of corporate balance sheets, increasing the level of (tax-advantaged relative to equity) debt and returning equity capital to managers and shareholders. And, worse, that relevering poses potential stability problems down the road as interest rates rise due to Fed actions to fight inflation pressures resulting from deficit spending. So, the GOP tax "achievement" is bad medicine for all but the already extremely wealthy. But that's GOP mantra - always has been, and apparently always will be.
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Excellent comment.
Before the corporate tax cuts were enacted, corporations were sitting on record amounts of cash rather than investing it in the business and their workers. Why did anyone think that giving them more cash would suddenly make them start investing it in the business?
Corporations don't invest because they have money to invest. They invest to meet market demands. The tax cuts should have gone to the people which in turn would have created that demand.
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I wait and wait for someone other than a guy who studied economic in eighth grade to refute some of Dr. K's arguments as presented here. Instead, we get the usual gobbledygook from the likes of Cavuto, Dobbs, and Bartiromo, "A rising tide raises all boats"; "lower taxes mean higher revenues"; etc. etc. Republican politicians, pretending these TV actors are real economists, cite them as experts on public policy. Meanwhile, those on the Right either can't read or choose not to read any serious discussion on economic policy. One interesting example: Arthur Laffer was economic advisor to ex-Kansas Governor Sam Brownback. Hmmmm.
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Lots of academic disagreement and partisan politics. Who to believe?
We operate only on theory if we don’t leave policy in place long enough to see a legitimate outcome— seems a little over a year is not long enough. Corporate maneuvering on the short term on newly implemented fiscal policy seems of little analytical value when trying to determine what the long term would bring. However, I am not an economist and would not dispute serious academics.
Dr. Krugman: could we get a non partisan panel discussion regarding the corporate tax rate instead of just one opinion?
This would go a long way to get voters to understand what’s at stake without feeling there is politics involved.
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5he overwhelming majority of economists agree with Mr. Krugman's analysis.
Those who have experience with business investment decisions (as I have) understand Professor Krugman's point about the minor impact of a 21% vs. a 35% tax rate. Such decisions are driven by more important factors, such as projected marketplace demand. Uncertainty in demand and cost projections require that any substantial investment must meet a demanding threshold where tax rates are not a determining metric. Essentially, lower tax rates increase after tax profits from an investment that would be made at either tax rate. There is nothing wrong with increased profits. As an investor, I am all for that. But the Republicans' arguments for lower corporate tax rates is hypocritical. They know better, but they figure they can fool the voters.
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This is the kind of analysis that makes me love PK! To me what's the most interesting is that, I think, American voters understand that the tax cut was a giveaway. Most of us may not think about why the tax cut would fail to deliver anything beneficial to most Americans, but by the same token, most would not think about the (specious) rationale that suggests it would. America would be a better place if we did those things, but even without doing them, most understand that the purpose of the cut was to enhance the rich. The problem we face is that facts in the empirical world around us, even when only understood roughly, just don't mater as much as symbolism and display. How else could we end up with a president who we know "tells it like it is" precisely because he is so willing to lie and spew hate based on lies. It's pretty easy to figure out what politicians will do in general when they get into office. The problem is that Americans now see voting as a statement about themselves (e.g. I'm better than either of these candidates) instead of an act that has consequences in the empirical world around them, mainly the lives of their fellow citizens. We are willing to make our nation weaker to make statements about ourselves or to deal with our feelings.
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Imagine how trump could have bragged he balanced the budget, instead we are getting huge deficits during economic boom times. When the next recessions comes we will be ill suited to deal with it. Sorry folks no MAGA here, just smoke and mirrors. Even the much praised wage gains are reduced by increasing inflation. COLA was 2.8% this year. That knocks the wind out of those much publicized 3% wage increases Trump talks about.
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The tax bill was a favor to a very tiny constituency, and for public purposes, a slap in the face to the Blue States (SALT changes). Unless you are in the top 10%, can write off vehicles, or run your own shop, "not much" is the answer.
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Thank You Dr K for bringing this back to the conversation. I maintain that the real purpose of the tax cuts is to "starve the beast" These looses in national funding are already causing the deficit to balloon. Mitch McConnell has already let the "cat out of the bag" stating that because of the red ink we are going to have to "re-examine" Social Security and Medicare.
Everyone needs to look up "The 2 Santa Clause Theory" because that is the real play-book at work here.
YES. Thank you Dr. Krugman for pointing this out. I always thought the tax cut was just a chance for the GOP to score political points by saying "look how much money companies returned to America!" Yes, but what did they do with that money? The answer wasn't difficult to determine and has been proved correct. They would reward their shareholders. One of my biggest criticisms of our capitalist culture is the central tenet that corporations only have responsibility to their shareholders - not to their employees, not to their communities, sometimes not even to their customers (cable companies anyone).
But why don't companies invest more in new products and services and in expanding production? Here, again, Dr. Krugman is spot on - "what drives such investment is, instead, perceptions about market demand." And the buying power of America's middle class has been shrinking as a share of GDP for decades. Who is going to buy all these new goods and services? So corporations are awash in cash (record profits as a % of GDP even BEFORE the tax cuts), and they face a shrinking population who actually has the disposable income to buy their products. What to do? Buy back stock.
Once they buy back stock, shareholders cease to get dividends.
1
The "tax cut" scam is costing me $4000. Pure and simple.
Live in a place with a state income tax, property taxes? Have a 2nd mortgage or other expenses that were previously deductible and you itemize over the standard deduction? The tax cut has or will cost you 'big time' as can be found using the IRS or tax service calculators for this year's taxes.
That $4000 is money that did not go into a planned trip to see national parks. It is money that did not get spent to fix up the house. It is money that could not be saved. It is money that did not go into local economy. It is money however that allowed companies to buy up their own stock.
9
The premise appears true, for large corporations the movement of monies is largely mathematical, the reason is to hide true profits to avoid paying taxes and boast their personal and shareholders take. Just look at trump and his ilk, they have perfected the shell game to pay little or no taxes that benefit the Nation. The Nation that provides the roads, education and protection to function, among many other things. Universal Healthcare, would be a big boom to these businesses as well, another story.
Where this falls apart is specifically for the large majority of small businesses including Mom & Pop. Sadly the Mom & Pop are being driven out by the large corporations. The other small businesses with employees of 75 or much less, if an LLC the profits appears to revert to the owners taxes. These businesses do pay their fair share of taxes. This is OK, if they have a good year, why shouldn't the Nation share in that benefit?
One reason may be that Americans really believed what the democrats told them -- that is, that only the rich got a tax cut. This is false. The entire tax table was changed with rates now lower across all brackets. Additionally, the standard deductions were doubled as was the child tax credit (now $2K per child, which comes right of one's taxes).
Those in states with high real estate taxes will suffer, but consider their much higher income and the fact that the average property taxes in the US are only $3,500, theirs is a wealthy person's problem.
1
@AACNY: If you own real estate, your taxes went up, New Yorker.
Tax "cuts" are the other half of Republican smoke-and-mirrors where "the value of the dollar" has eroded to the point of no return. "Those of us old enough to remember" in a single lifetime the best house on any block was $35,000 at most and a top-of-the-line automobile could be had for $3,800. A quick read of "The Greater Fool Theory" will explain a lot including how it drives political promises such as tax "cuts".
2
@Edgar Numrich: A modern car is to that $3,800 clunker as a Boeing 737 is to a DC-3.
CBO released its October budget review, which covers the full fiscal year 2018, which ran October 1, 2017 to September 30, 2018. Corporate income tax collections fell by 31% in 2018, about $92 billion. That accounts for most of the deficit increase of $113 billion from 2017 to 2018.
Should anyone be willing to pay for higher interest costs on the national debt so corporations can get a tax cut and funnel that money to the top 1%, who own 40% of the stock market? Of course not.
The economy has historically performed better under Democratic Presidents in terms of job creation, GDP growth, and stock market returns.
Since Bill Clinton balanced the budget 1998-2001 and Obama brought the deficit back below historical average as % GDP by 2014, Democrats have also been the party of fiscal responsibility.
11
You’re absolutely right. History has long shown that Democrats are far more successful at growing our economy and reducing the deficit.
What the Democrats haven’t done well at is lie, obfuscate, pander to racism, misogyny, homophobia, and conspiracy theories. Without those necessary ingredients the Republican base will never submit to Democratic economics.
1
It's hard to imagine how any well-informed person would support the almost criminal G.O.P. tax plan that would put more money in the pockets of the wealthy and corporate elite at a cost to the average hard-working American.
But then again, it's hard to imagine how any well-informed average hard-working American would believe anything that comes out of the G.O.P.'s and Donald Trump's mouth, when they clearly have no interest for anyone or anything that offers no financial incentive.
So of course it had to be only a matter of time before folks started to wake up to the fact that they're paying more for less, they're about to lose what they had, the jobs aren't coming back, the previous administration didn't cause a depression -- and some promises aren't kept.
7
Pretty much true based on my experience managing and ultimately running a mid sized corporation. Tax rates have little or no impact on investment decisions. The only exception to this rule is where government has offered tax holidays along with other incentives to persuade a corporation to locate in their jurisdiction (as for example in the recent case of Amazon's headquarters). Investment decisions are driven by demand for your product and the overall state of your balance sheet and P&L. Interest rates when they go outside what one could call normal parameters (as for example in the early 1980's) do play a role but normally no.
12
@John. I agree. Most studies show that tax incentives are not the main driver of business investment decisions.
Even the Amazon decision on new headquarters was not driven primarily by the tax incentives since other jurisdictions actually offered more.
@J. Mike Miller
Yes, lucky Queens residents and those in VA where the taxpayers/residents there basically "paid" for Amazon to move parts of their operation to their location. I don't get why this happens over and over. I understand the point of a huge, successful operation like Amazon conning/culling to those who run those counties/cities who want the big amazon there for jobs, but at what cost? And yet to chrage local taxpayers? Increased demand for roads, schools, sewers, etc. Maybe Austin dodged a bullet. Traffic here still trying to catch up to the explosion in population. And schools, etc. Yes, hooray for Trump's tax cuts. For those already wealthy/lucky, what a boon.
@J. Mike Miller
The reason I mentioned the exception is because I do know of one case where it was a factor. With Amazon it was obviously a mix of reasons, always is, but had the financial incentives been absent Queens and VA might have lost out.
The Republican mantra now will be that we have to pay down the deficit that they created by reducing expenditures on the social security and medicaire that I paid for for more than 40 years, How ridiculous. Reagan, Bush and now Trump have all made the same argument with regard to tax cuts on the wealthy and corporate with the same result. It has always been a sham and hopefully voters will now understand that.But how to pay for this now yuge deficit? If it can't be reduced when times are good.
13
Mr. Krugman's column conveys some badly needed wisdom. On a different but related note, what about the looming effects of the expanding federal debt? I understand we may be less than five years away from annual interest that exceeds payments for all other programs except, maybe, defense. Yet I hear very little comment on this issue and absolutely none from Congress or the President. Very worrisome, indeed.
8
Dr. Krugman writes:
“Unfortunately, it’s difficult to get politicians to understand something when their campaign contributions depend on their not understanding it.”
Sadly, GOP politicians and the donors that own then understand exactly what the tax bill would do. It was designed to enrich the GOP’s donor class (and Trump himself) and cut tax revenue. With the excuse of the massive resulting government deficits, the GOP would then try to destroy the social safety net. Luckily the GOP lost the midterm elections and won’t get their wish.
17
It seems that everyone just hates Taxes. I read that a Democratic state recently had a referendum to add a tax for some benefit and it failed miserably, by Democrat voters. We feel taxed to death no matter what we pay. Federal tax policy is very progressive and a lot of people don't pay much more than SS tax. So human nature only looks at the down side not the benefits. Roads, schools, military security, SS, Medicare etc.
If I remember Economics 101, taxes are on profits, not gross. In 2016: Unitedhealthcare had gross sales of $185B; net income of $7.2B and tax of $4.9B for a 40% tax rate. But that was only 3% of total sales. I believe that costs that reduced profit ( to $7.2B) included all salaries and research and capital costs. So the profits are put in Reserves, invested or distributed to stockholders. So hard to say what this did to a mainly domestic Co.'s health. Internationals, Exxon paid 2%. Apple had a gross margin of 27% and paid 26% taxes. GM had sales of $166B, net profit $10.5B and paid 11% taxes. (From an article in Forbes)
The marginal tax rate on profit varies quite a bit. But it is only a percentage of the gross sales and varies industry to industry. It gets pretty technical, and we who vote get a very watered down understanding.
2
President Bush senior before he was president said when running against Reagan that Supply Side Economics was Voodoo Economics. He was right then and the same can be said for the current Republican economic policy. The Republican platform until Trump had always been based on fiscal conservatism, at least that's what they proclaim every time a Democrat is president. What it really comes down in the Trump era is just plain greed and control of power at all levels. Fiscal conservatism is non existent in the present Republican party as it's boiled down to retaining power at any cost. Retaking the House this past election was the first step. The next step has to be the removal of Trump if not before 2020 then absolutely by the November 2020 election day. Hopefully also gaining control of the Senate at the same time.
11
@VMG
Comedian Rich Little had it correctly explaining the economics of Reagan and his budget director David Stockman to us common folks: "Imagine your Mom bakes a pie that has three halves . . . "
2
"So the basic result of lower taxes on corporations is that corporations pay less in taxes — full stop." You left out one other important result of the Republican tax cut--a huge ever increasing hole in our nation's deficit and national debt--another Republican gift that will burden our current and future citizens for many, many decades to come....
11
The prof says that tax cuts by O didn't cause a recession. I'm not sure if that is the argument the right uses when it opposes tax hikes: their mantra is that (with Ronnie R their poster commentator) government is picking your pockets with little to show for it in terms of what the money is spent on. The Dems on the other hand have a difficult task in persuading the electorate how tax hikes are incentive in nature and well intended. The task of persuading the electorate by the Dems has to be at full throttle and unequivocal.
3
I agree with Professor Krugman. One issue no one is talking about is the looming national debt. Reagan was correct this would be a problem, because of the interest that would be a larger and larger component of the immediate budget years. But, he was referring to a national debt of about $1 Trillion dollars. We have a looming problem unless we get our current increasing debt, over $20 Trillion, straightened out. If you can't do it during the current comparative prosperity, when can we get to it?
4
FYI: Reagan nearly *tripled* the national debt. If you don’t believe me, Google “national debt” and get the awful truth from the Treasury Dept website.
2
A fine column. But Krugman omits mention of Clinton's 1993 tax increase. This was opposed by every Republican in Congress, but within months it helped allay fears about the burgeoning U.S. budget deficit and sparked the rapid economic growth of the 90s. If the Democrats win control in 2010, they will need to repeat that tax increase to reduce the deficit and fund infrastructure, educational and research investment.
9
The Clinton years are more nuanced. His outcomes had nothing to do with tax policy— it had a lot to do with the rise and fall of the dot com.
This aspect seems always buried.
4
@Len
The Clinton boom began well before the dot.com frenzy. It was a consequence of the control of the deficit and run on the U.S. dollar caused by Reagan-Bush mismanagement. I was there in 1993 watching, Len. Were you?
One other aspect is: for decades corporations looked at labor as stealing their profits. Workers were inherently bad for corporations. Corporate efforts have been focused on making sure as little of the profit goes to workers as possible. And guess what? It worked. As workers struggled. As income inequality widened. Through good times and bad. Corporations came out ahead. Why change course now? Sharing would only lead to demands for more sharing. Stick to the script, corporate America. The beauty of it all, for corporations, was convincing Republicans and their base that there is still a pot of gold at the end of the rainbow for American workers. A tax cut for corporations and the wealthy is all that stands in the way. And Republicans and their base swallowed the bait whole with the hook. What Republicans bought into was massively increasing the wealth at the top and paying for it with massive cuts to social programs. So, Trump base, the income gap is not going to close and when the next recession comes, the help that was there for you before will be gone. The poor won't get it either. But they are used to living off society's scraps. The Trump base will have to get accustomed to it. I know, I know. Lock up Hillary. There, that feels better. Doesn't it?
14
I certainly can't match the economic knowledge of Mr. Krugman but I can speak from the level of a midwestern small business owner.
Macro econ. 101: Business hates political instability. Having worked at a relative steady pace the last 40 years or so I received the wake up call almost the day after trumps 1st line of tariffs were implemented. From that point forward, in 5 months I worked 2 days. I'm done. I've cashed out so to speak.
What really worries me from the macro standpoint is that I've learned long ago that many business decisions transcend politics, race or religion and tend to gather around economic class groups. In other words, if I'm thinking it as a small midwestern businessman clinging desperately to the middle class, so are many, many others in my economic class.
And just another footnote: When you dropped my tax rate on my little LLC to virtually nothing I'm curious if it ever occured to you Republican tax bill authors that "Section 179" pretty much lost any value to me. Just pay the tax. Be careful Cat and Deere.
5
Mr. Krugman,
Your argument makes a lot of sense to me since it relies on data and analysis. And that is precisely the problem for Trump's base. They ignore of data and facts. So Kudlow and Navarro just needs to tell them that the opposite is true and they believe it. They will never say "show me the evidence."
5
@Sherlock
It's so tedious reading this supercilious perspective, ex., that Trump supporters ignore data and facts. Has it occurred to you that there is not one golden rule in economics? That economists can produce chart after chart supporting their theses?
You are free to "believe" Prof. Krugman's analysis, but you will be hampered significantly if you think every other economist is wrong. That's dogmatic thinking, which is, unfortunately, exactly what Prof. Krugman is engaging in.
I liken this to the initial conception of Obamacare. Obama didn't lie about "you can keep your doctors," but he and his advisors did not take account of the self-serving nature of the insurance companies, who have profited from it.
Likewise, trump and his advisors perhaps thought that the companies, with their big tax breaks, would altruistically hire more people, etc, rather than using the money for themselves. I say "perhaps" because I want to believe trump's people naively thought the money would be recycled into the economy, rather than that they cravenly knew what would happen, and still wanted to reward the companies at the cost to us all.
4
Paul, can I interest you in writing a column on another possible effect of the Trump tax cuts--the boost (or bubble) in the stock market? Rich people who get yet more money tend to invest it, but a lot of the investing goes to buying shares of stock that were issued long ago. This doesn't create value for companies, as distinguished from stockholders, or create jobs or promote investment in PPE and the like. Could the tax cuts be setting us up for the next crash?
8
Personally, if I were to invest in something that would give me a 10X return in two years and the tax rate was 35%, I would pass; but at 21%, oh yah. I'm sure all my conservative friend would do the same.
2
So, 2 years hence your $100,000 investment is worth $1,000,000. At 35% you pay $350,000 in taxes, giving you $550,000 in profit, a 5.5x return. That’s not good enough? I’d sure take it.
7
@David...I owed several businesses and coached over 100 SME over 30 years. Never once did I hear a business owner decline an investment because of tax implications. They were incentivized by investment credits that simply sweetened the return for them. If demand is strong, predictables and growing, it makes sense to invest. This supply side stuff is sheer nonsense cooked up by politicians. The real world doesn't work that way.
2
@David
What Prof. Krugman conveniently overlooks is the optimism many small business owners are experiencing. They are now free to make those decisions that they put off because of uncertainty.
And I can attest to the fact that small business owners call their accountants all the time to ask about the tax implications of potential actions, from buying a building to adding workers.
In the US the phrase “carbon tax” is a hot button phrase and it will have a hard time becoming law. It also may not be accepted by a majority of American voters.
But a better example to follow is the federal gasoline tax dedicated to highway construction and repairs, which has been generally accepted by almost all Americans for many years.
So instead of a carbon tax we need a refundable “Hurricane-Drought-Flood-Wildfire Tax” on carbon emissions, which we can nickname the Refundable HDFW-Tax.
Perception is more important than reality, especially when it comes to taxes. This simple name change could greatly increase the public’s acceptance of a tax which by its very name will inform the public that it is directly related to addressing the well known problems caused by global climate change.
Thanks
Mike M.
6
Notice that Amazon decided to put its new locations in high tax areas. The services and potential employees are better here. There are plenty of low tax, Republican areas where they could have relocated.
33
You haven’t taken into account the tax subsidies New York and Virginia have promised Amazon.
1
@WSB
Work with what type of talent?
The guy who believes world is flat type of talent.
There are many talented and high skilled Conservatives as much as Liberals but issue is they are also alienated by those type of stone head ones.
Thank you, Dr. Krugman for explaining it clearly and in understandable terms.
3
"Unfortunately, it’s difficult to get politicians to understand something when their campaign contributions depend on their not understanding it."
This is certainly the case, but it wouldn't matter if GOP voters would finally accept that what is good for millionaires and billionaires is probably not good for working people. But of course GOP voters always seem to want to believe that if they vote like the 1% then they too will soon join the elite.
13
You are too naive to think the GOP voters vote for the GOP in the belief that they could soon join the 1% if the gop policies are implemented. The rich vote for obvious benefits . But the poor are Hoodwinked by riling up white identity politics and racism by pointing to the browning of America and brown immigrants.
1
What makes you think that economic policy is the top issue for Republicans? The top issue for Republican voters, according to the exit polls from last week’s election was immigration. Rank and file Republican voters are much more interested in cultural issues and getting revenge on the “libs” who they think don’t respect them.
1
This is hardly a surprise; during the run-up to passage of the corporate largesse giveaway, virtually every economist predicted the likely result: stock buybacks. The only “academic” voices favoring the legislation were Stephen Moore (who became cable TV’s voice for equivalence), and Peter Monaco, who joined the Trump regime to push passage.
The tax cut plan was and remains the quintessential example of Republican chicanery under Trump. There is no doubt the Party and the White House knew what would happen if the bill passed, but they went ahead with it anyway, like lemmings spilling over a cliff. It is this boondoggle that will be and must be the defining political issue of the 2020 election. American voters were swindled.
10
Call me cynical, but I think many conservatives do not care at all about the rest of us, just their own overflowing coffers to do whatever they want with it. This talk of helping the economy etc. is just sweet talk to the gullible, the ones who keep voting these folks back to office expecting a different and better outcome in their own financial lives. Sad.
429
@JJ
If enough voters wake up perhaps we can claw back some of the Republican donor class' ill gotten gains. It may be necessary to deal with the coming deficit.
18
@B. Windrip
GOP politicians (and others, too) sing a one note song "me, me, me, me".
11
@B. Windrip a large, one-time wealth tax would solve a lot of problems, fiscal and political.
1
What the vast majority of people - not just average citizens but politicians and even business leaders - fail to understand is that businesses do not pay taxes. Only people pay taxes.
At every level of government, the entire rationale for taxing businesses is to fool people into thinking that businesses pay part of the tax burden. But that's nonsense. A business merely passes its taxes on to consumers as another cost of doing business. In most markets, competitors pay about the same taxes, so taxes are largely irrelevant and businesses focus on their competitive advantages to increase profitability and market share: innovation, quality, efficiency, brand building, etc.
Governments have devised many ways to disguise their revenue because people are reluctant to pay "taxes", but any money paid to a government is a tax, whether called a tax or a tariff or a fee or a fine or a toll or a lottery. In the end, only people pay taxes. How could it be otherwise?
A sales tax picks our pockets so deftly that we hardly notice, and governments withhold taxes before they are due to slyly earn interest on our money while tricking us into getting excited about a tax refund that was our money to begin with.
There never was a chance that the tax cut would benefit the economy because raising or lowering business taxes is a government shell game intentionally designed to dupe its own people. A tax by any other name is still a tax, and - let me say it once again - only people pay taxes.
264
Actually, businesses do pay taxes. The businesses pass it onto customers but only to their customers not everybody. The more they sell, the more the businesses rely upon public services to enjoy their ability to make money. A huge manufacturer puts a huge burden upon all public services in comparison to a small retail store. The customers contribute taxes according to the proportion of the public services that they use through the businesses with which they do business. The argument that businesses don’t pay taxes is a con designed to make everyone pay for all businesses’ burden upon society.
38
@Bill -- No, the reason for tax withholding is the terrible distortion of the money supply that would take place if people had to save for 11 months and then all pay together during one month. If you pay estimated taxes, you would notice the odd scheduling of it -- the second and third payments are due one month early. This is to balance against the refunds that are taking place at those times. It's not a trick, they're just trying to make things work correctly for the economy.
22
@Casual Observer,
yes, a thousand times yes. Thank you!
This great "free market" does not exist without government services, and government keeping the peace. Calls for "small government" often end up meaning "government when it's convenient and serves my purposes." aka: privatize profits, socialize costs
53
I have not seen any evidence that manufacturing by US corporations has been moved to the US from Mexico, China or any other foreign country. Sure, some companies have shifted manufacturing from China to Viet Nam or Bangladesh to avoid US tariffs, but that dies not create jobs here. Cutting corporate tax rates has no effect on companies that don’t pay any tax at all. That includes many of our most profitable companies. Speaking of taxes, how does the new tax law affect Trump’s personal tax situation? Maybe we will find out soon now that we have a Democratic House.
4
The core of capitalism is the movement of capital, but the tax cuts did nothing to drive consumer demand via higher wages. Give the average worker a higher wage, and they will spend at least some of it, increasing demand. Beyond mere spending, it's the *type* of spending - consumer goods and services that spur growth. Give it to someone who already has far more than enough, and they won't be spending it on typical consumer goods that are the backbone of a solid economy.
380
@Fredd R A tax cut to lower income earners spurs consumer spending. An infrastructure bill that spurs corporate spending on big construction projects increases wages and enhances our lives and increases consumer spending that would really boost the economy.
The kleptocracy continues.
28
@Fredd R Actually, I would take your comment a step further. The wealthiest Americans (1% especially) cant figure out how to spend the tax cut, so they invest in Private Equity funds that destroy businesses (look at most recent BKs precipitated by PE Groups churning investments and overleveraging good business to their ruin) and invest overseas to diversify/maximize returns. None of this extra money they keep through tax cuts and carried interest tax dodges benefits America.
Thus, get rid of the loopholes and tax shelters (including 1031 exchanges), simplify the brackets, and fund the government. As you note, putting money in consumer hands and in infrastructure and education (the real thing, not the for-profit diploma fraud mills) will lead to more current consumotion/spending and make a positive future possible for our kids.
3
@Fredd R
Consumer confidence is at its highest since 2000. According to the WSJ*:
"U.S. economic output grew at a robust 4.2% annual rate in the second quarter, largely because of the best consumer spending in nearly four years, the Commerce Department said in late August."
****************
* "U.S. Consumer Confidence Hits 18-Year High --
Strong economy and robust job growth bolstered consumers’ sentiment"
https://www.wsj.com/articles/u-s-consumer-confidence-rose-in-september-1537885594
I own a small business. In 22 years, I have never made any investment decision based upon tax rates. My problem is this. I have to make money to survive. That means I have to bring products to market that I can sell. I must invest in new products or the business dies. I have to do this whatever the tax rate is.
If the tax rate is lowered, then that introduces a perverse reverse incentive. Instead of risking capital, which could be lost if the investment doesn't produce profits, the lower taxes just put more money in my pocket without taking any risk.
Now I'm a really small shop and these new tax cuts have minimal impact on my bank account, but what I just described is what corporate America just did with the tax cuts. They stuck the money in their pockets.
When business is bad, I am more motivated to take risk and work harder to come up with new stuff to keep things going so I can eat. When orders are flowing in, the tendency is to sit back and just let things roll along. Why risk more capital if I'm doing fine.
Everything is just the opposite of what the Republican economists predict. That's because all they have ever been interested in is just lining the pocket of the rich, which they are really good at.
1392
@Bruce Rozenblit, would you also agree that higher tax rates can stimulate investment because they cut profits of those who don't try harder in order to compensate for higher taxes? I call this the "Groner Curve" since it's the opposite of the "Laffer Curve".
45
@Bruce Rozenblit
Same in my case.
And on top of that, my profit margins are so small that tax to be payed is totally irrelevent. If I happened to have a better year I give bonuses and pay income taxes off that.
79
@Bruce Rozenblit
My favorite Republican economist prediction is the one about "job creation". They try to sell tax cuts as incentives to hire new employees.
Aren't jobs an expense? A dollar has no conscience and business owners do not hire people as an act of good will. There has to be demand first. Even then they would rather have robots that need no benefits or paid time off.
Another is that people base their ultimate business decisions on tax rates. As if an entrepreneur would say "I think I'll sit on my burning desire to succeed with my idea until taxes are a little lower".
109
There's another reason to explain why the tax bill failed to be a winning argument for the GOP. The biggest electoral swings (I believe) were in New Jersey and California which are both high tax states. Therefore, well off suburban voters were inclined to throw the bums out that made their state and local taxes non deductible thus increasing their net taxes. I agree with Krugman's economic analysis but a different tax cut that still reflected Republican orthodoxy that didn't eliminate the SALT deduction could have minimized the blue wave.
Conversely Florida, which many hoped would be part of the blue wave. But it was not to be. Coincidentally, Florida has no state income tax, and it's red wall pretty much held.
5
If you want a tax cut to stimulate the economy, you give it to low and middle income people who will spend it to buy things. That's common sense. But since when have the Republicans had any common sense on policies that would help the average citizen?
15
None of the basic economic facts Krugman sets about the scam behind the GOP’s “tax cuts” stimulus are “rocket science,” but as with climate change, and the benefits of universal health coverage, the unconditional Trump supporters will go to their graves repeating “my ignorance is just as good as your knowledge.”
9
The tax cut was The First step to cutting entitlements ... The deficit is now growing, so "gosh, we must cut spending!" And on the way, the 1% is laughing all the way to the bank, led by Mitch McConnell and Paul Ryan. Republican voters duped again!
9
Theoretically, I think “Trickle Down Economics” could work. But the money, alas, never seems to “trickle down” from the very top! Aye! There’s the rub!!
3
Vintage Paul Krugman. Easy to understand layman's economics 101.
If the politicians really wanted to boost the economy, they would have given a low and middle income tax cut that mattered, not the one that was simply to fool the unwitting and will be taken away at tax time next year. That would have created market demand, which in turn would have produced more investment.
4
Oh contrare Mr Krugman,the tax cut was a total success. The bill redistributed massive amounts of tax dollars paid in by the middle class to Trump and his wealthy contributors.Any talk of tax cuts being great for the economy and working folks was a lie propogated by the Republicon Congress to bankrupt the government and justify cutting Social Security and Medicare. The proof is in the pudding while the Trumpian claims are totally vacuous.
3
A friend, a very conservative type who voted for Trump, saw a $20-25 increase in his monthly take-home pay.
When I pointed out the a 1 cent increase in the price of gas for his gas-guzzler would more than eat up that increase his response was, "Well at least I got more than I did from Obama." That gas prices were quite low during most of Obama's years meant nothing to him.
Data and logic mean nothing to The True Believers.
I no longer waste my breathe.
4
"Unfortunately, it’s difficult to get politicians to understand something when their campaign contributions depend on their not understanding it."
Fortunately I have Mr. Doctor Krugman to help me understand what puppet politicians don't want to understand.
Thanks Doc.
5
The final sentence is the whole story. While we in the masses may see no benefit - and we don't - to the tax cuts, their donors do and that is all that matters.
The GOP pleased the people they had to please to get the funding that their donors threatened to withhold without the tax cut. (Of course, this is not bribery!) All the rest is theater and nothing more. Unfortunately for the GOP, it gave them what they wanted in campaign contributions, but not in votes. Quelle dommage!
7
Thank you Mr. Krugman for breaking this down in a way that is easier to understand as a whole. Politicians and the media over simplify our complex global economy into idioms like “a rising tide raises all ships” and “trickle down economics”. They continue to say things that are proven falsehoods but the average American (me included) can’t possible appreciate the nuances of how macroeconomics work. This is why we have professionals that are educated in universities with masters and phD’s to help figure this out. But then we castigate those same professionals as “elites” and out of touch with the common man. And around we go...
93
@Dan
You can't do economics with simple slogans. It's not impossibly technical -- or should't be. But yes, you have to invest time in getting the concepts and facts straight. And you also have to be willing to listen to answers you didn't want. Needless to say, the modern GOP can't and won't do any of that.
127
@Dan in late 2007 early 2008 I would frequently have economic discussions with my new boss (a local politician) and I admit I would get pretty worked up about what to me (an executive assistant) was obvious...this while economy is teetering on the brink of disaster!! I could see it all around me in what seemed to me to be as obvious as a raging fire; how can this many people be affording houses that are 400k? How can they be driving all those new cars costing 32k?? I was solidly middle/upper class and had 70% equity in my home because we built it ourselves and we could not afford a new car and were just treading water! How were these people doing it? By being in debt up to their eyeballs! Why were they in debt so bad? Because the bankers and investors abetted by politicians were covering up the truth of top down greed by allowing unsound borrowing so the masses could keep up their life styles. It was so blatantly false and precarious that the smallest tremble would bring it crashing down. If I, a college liberal arts grad could SEE this so clearly, I do NOT believe for one second that all these economic experts could not. Not for one second
8
@Paul Krugman I am convinced now more than ever that a basic understanding of how the market works and the economics behind it is the basis for the future of our Democracy. If ignorance on these continues to supply bliss for those who want to believe in Trump's tax breaks, then knowledge of them understood at its most basic level is the best weapon we can wield. My education was in the Humanities and provided very little in the way of the kind of knowledge you are sharing with us, so thank you. The ability to converse on these topics is essential for any TRUE patriot who wants to see the slide toward autocracy we are facing brought to an end. By the way, I'm signing up for your MasterClass on these issues.
4
It may have failed politically because we citizens are not as stupid as the GOP wants us to be. We actually look at our pay stubs and know that the run up to the tax bill was a pack of lies and any touting of its virtues is still a pack of lies. We want our money back!
11
My back of the envelope calculation tells me that my employer has under withheld. As they employ both myself and my spouse we are in for a reckoning in April. I bet we are not the only ones. The whole #GopTaxScam was a
fraud that crossed lines that will destroy our nation. The fixes must begin with taxing all income as ordinary income and removing discounted categories for pass throughs and carried interest
10
@Deirdre My daughter did the same. She's now in a lower tax bracket, getting more money monthly BUT the accountant says she'll owe $6000 in taxes come April if she doesn't start NOW (it's December already for payroll purposes!) to pay that, including writing a big check in January. Bye bye Christmas bonus. What a scam indeed!
If elections were held in April after people do their taxes, the Republicans would lose "bigly."
2
The tax cuts didn't work because they didn't cut them low enough!
Typical Krugman: start with the conclusion and progress to regurgitating dogma.
The honorable laureate predicted a crash and mayhem should President Trump be elected. Now he wants to ignore record revenues, record employment inclusive of women, blacks, and hispanics, and GDP growth dwarfing anything seen under his policies as implemented by the last President.
It is time to reevaluate old dogma in the light of facts.
2
@OldEngineer Krugman’s analysis is sound. His focus here is on the tax cut and it’s intended benefits which did not come to fruition for all the reasons he point out. He is not addressing the overall economy here, although he does acknowledge the good health of the economy. That health started under Obama and has continued. He was wrong about a crash resulting from Trump being elected, and I am sure he would acknowledge that fact.
5
“The political payoff, of course, never arrived.”
Sure it did: The mega-donors are giving as much money as ever to their GOP lackeys. That’s all it ever was about. The problem at the ballot box was just that their ability to spin it to the Fox News-watching base was derailed by the apparent lack of any meaningful rise in workers’ wages. (Yes, I know—wages have been going up a little ...about the same as cost-of-living, so it’s a wash).
Even Fox News and Rush Limbaugh can’t change the numbers on someone’s paycheck every Friday.
1
Now make 62 million Americans understand what you have written. It is hard to believe that there are 62 million milionaires and billionaires in this country but judging by the way people vote, there must be! or else people are voting against their own interests such as tax cuts for the rich instead of them, no healthcare instead of Medicare for all!!
3
Supply-side economics just pushes on ropes. Demand pulls on ropes. Ropes only transfer force when pulled.
5
Wonderful column, Dr. Krugman. Thank you.
Don't ever believe the trickle down theory of economics it is nonsense.
2
It was a fizzle because supply side has never worked.
The Repubs have been running the con since Reagan.
It balloons the deficits and people get trickled on.
The enemy is math and facts
135
@bill b
To be fair, this tax cut invoked a new supply-side argument, based on international movement of capita. So it wasn't as stupid as the usual arguments about rich people working harder. But it fell flat anyway.
68
@Paul Krugman "rich people working harder". That by itself is a great slogan (with a not). Tell us (them) how they should be working. I would say it should be to save the planet, which means also saving Democracy. what they don't seem to understand is that after a switch to renewables--zero emissions--people will still continue to buy things they don't really need. And basic energy prices will be cheaper. Bringing down energy prices through zero emissions will lead to economic growth. And better education, with regulation, should lead to more protection of biodiversity, also a must for future generations.
6
The tax cut is a powerful symbol of greed. It has done nothing- nothing - to enhance the nation. A trillion & a half dollars swallowed up providing stock buy backs. And probably, (it’s not advertised, of course) upper management bonuses. Of course, the GOP couldn’t use the tax cut as a stimulus for all of us. Trump followers are being used and abused as the GOP rewards the wealthy while offering the vast majority tax increases to afford the lost revenues. Trump is a con artist and he is conning too many.
3
@Rev Wayne
Increased stock prices benefit the holders of options which tend to be the executives also bonuses in some companies are tied to stock price.
Right-wing economic doctrine (I no longer call those people conservatives) is more pernicious than that. It's based on being incredibly nice to the wealthy to try to get them to make socially beneficial decisions... that much is true.
But it's also vicious to everyone else. While it offers the carrot to the wealthy, it's only got the stick to offer the working class. Its aim is to keep them desperate enough that they'll have to put up with any level of exploitation. This goes by the name "self-sufficiency," as if it's any more self-sufficient to be completely in thrall to an employer than to rely on a mix of wage labor and social programs.
4
Here’s how the big con works. First Democrats win and raise taxes in order to address the country’s problems. Second Republicans shout “Deficits!” and refuse to spend any money. This results in increased tax revenues, reduced deficits, and more unaddressed problems. Third, Republicans campaign on how bad things are and those “tax and spend Democrats” and they win. Fourth, Republicans pass tax cuts because that’s what their donors insist on. Result: the wealthy get more wealthy, the problems get worse and the cycle starts again. This is really leagalized theft using the US treasury as a means of transitioning wealth from the many to the few. Republicans call it trickle down, but in reality its always been trickle up.
7
@jim
Trickle down economics is why they call us "peons".
Republican senators and congressmen did exactly what their owners paid them to do- cut their owner's taxes and pretend that everyone was going to share in all the new wealth that would trickle down to the suckers that believed them.
They've been selling this scam forever and a large portion of the people still fall for it. They stole more than a trillion dollars with one vote.
4
“Republicans thought it would give them a big electoral boost, and they predicted dramatic economic gains. What they got instead, however, was a big fizzle.”
Here’s what I believe: they truly don’t care. Republicans couldn’t possibly have cared less whether the tax cuts would give them a big electoral boost or whether they would produce dramatic economic gains. When you are thieves and you have the opportunity of a lifetime, you take it. It’s that simple. They had the chance to steal hundreds and hundreds of billions of dollars for their owners and for the companies whose boards they would sit on after their political careers were over, and they took it. It’s that simple.
4
It's as if the tax cuts were really economic effects, and not about lining their benefactors' pockets now and in the future. Although I have always appreciated Krugman's analyses - I read Pop Internationalism and The Return of Depression Economics way back when - arguing facts might be useful for swaying readers and some of the electorate, but it totally misses the point. Trump, et al., are simply "pigs at the trough", kleptocrats grabbing as much as they can while they have power.
3
Reality is really complex and hard to understand. That is why most people (including me) don't really understand it fully using their own devices.
I know less than a scintilla of what there is to know and only a thimble full of what I could possibly know to some quantitative degree if I really tried.
But I mightily strive to NOT be WILLFULLY IGNORANT and/or an IDEOLOGUE.
Even if I lack perfect knowledge by far and am not the brightest bulb I can be intellectually honest, try to avoid logical fallacies, and concede to the facts of matters when they are evident.
I also can insist that those that proclaim things - especially things they want me to buy into - be honest with me and try to help me understand the whys and wherefores cogently with working honestly tested models and evidence that exposes pros and cons and informs my decisions.
And this is why I am exclusively a Democrat now. NOT because they always hit the implementation model squarely; not because they are always perfect beings or always to my liking.
No, but because they have a far greater allegiance to things that comport with reality and on balance their conceptual models have better track records for humanity than the GOP's.
Any honest person looking at the evidence would have to agree with that; stripping away ideological/religious/selfish/cultural drivers that precludes their recognizing truth.
Want proof: honestly examine GOP Healthcare or Tax Plans! Blatant metaphors that expose the GOP con!
3
GOP tax policy will never change as long as dumbed down Republican voters who have no understanding of even basic economics keep voting Republican.
The rich who benefit the most from fantasy trickle down economics will continue to donate and buy congressmen so their income is secure forever.
Nice job Republicans.
1
Still waiting for the 10% tax cut the president promised for middle class voters prior to the election. Could that have been just a FAKE promise?
2
The CEO's are not yet tired of winning, but a lot of voters are showing signs of fatigue.
3
This analysis is spot-on, but there's nothing new. Basically, what happened after the tax cut is exactly what Krugman and other left-leaning economic experts said would happen.
I'm convinced that, aside from a few "true believers" like Paul Ryan, no one on the right believes the supply-side tax-cut mumbo jumbo, either. Business executives know that they don't pay their employees higher salaries just because their tax expenses go down, nor do they hire more employees just because they have more cash on hand. It's just a lie that people believe because it makes some intuitive sense.
If I'm a regular person and I have more money, maybe I hire someone to help me with housework or the lawn. But businesses don't work that way. Businesses hire the minimum number of people to do the work, and pay them the lowest amount that they can get away with in a labor market. The way to increase wages and hiring is to increase demand -- i.e. put more cash into the hands of their consumers. Thus, we are the "job creators" (to steal the right's deceptive label), not business owners.
It's counterintuitive, but the way to create jobs and raise wages is to give money to the poor, not the wealthy; money trickles up, not down.
15
The tax cut offered little more than a supermarket flyer to the average person. It didn’t affect the price of potatoes.
7
"The political payoff, of course, never arrived." Well, that is the bad news. The good news is the payoff on the political investment did arrive in the form of the tax cuts, the rollback of Dodd-Frank. and rollback of those troublesome economic and environmental regulations.
"Unfortunately, it’s difficult to get politicians to understand something when their campaign contributions depend on their not understanding it." That is not a bug. It's the linchpin of our openly corrupt political system.
10
As we've come to expect from Professor Krugman, great analysis, well expressed. I'd just add that the same rationale applies to the reason Republicans favor lower capital gains taxes, an upper limit on payroll taxes, deductions for charitable giving above a modest level and disfavor aggressive IRS auditing of corporations. As the Professor said, neither the Reagan, nor the Bush I nor the Bush II tax cuts achieved any real improvement in median family income or availability of jobs for working Americans. Why would anyone expect a different result this time? GOP tax policy is simply a reverse Robinhood scheme to take from working Americans and give to the billionaire class. But this time is different because now most ordinary Americans know this.
12
@KenC The observed data refute your assertions re: middle class income and job growth. Do you read the paper?
2
it seems Krugman is advocating tax cuts for the not so rich. They will spend all of the tax savings on goods and services increasing the goods and services produced by domestic and foreign entities.
1
It seems like not one GOP economist or legislator has ever actually done investment analysis in a corporate setting. There are three reasons corporations invest in physical assets: 1) growth in demand, 2) improved efficiency of production facilities, and 3) to enter a new line of business.
Furthermore, financial modeling is based on cash flow and any decent analyst knows to use the proper tax accounting (MACRS, accelerated depreciation, etc.) to get the correct cash flows. The tax code before the GOP tax cut had many favorable rules that meant an investment could pay little or no taxes in the early years of its life. A reduction in the corporate tax rate wouldn't change that.
Lastly, most publicly traded companies disclose their effective tax rates on a quarterly basis in their SEC filings. Virtually no company pays the statutory marginal rate because of all of the other aspects of the tax code.
Our tax code is overly complicated because we have know-nothing senators and congressmen who pass bills based on the thinnest of understanding of basic economics, accounting and finance.
8
It still goes back to the 1980's. Trickle down didn't benefit workers then and it still does not today. Whether you convince the worker with data is the question.
15
@tom
Don't try to convince workers with data. Like the state and local representatives they elect to their legislatures, they don't understand it. Instead, tell them a story. Give them something they can relate to. In other words, ask them to remember a time when they and/or their community was doing well. Let them tell you what was best about it. Let them savor the memory of when they went to their grandparents' cottage in the summer or took family vacations to the national parks. Let them get the emotional feel of having "enough".
Then, ask them when that started to change. Write it on whiteboard and finally add the dates of tax cuts that never delivered. Ask them what happened and let them make the connections for themselves. In the process, they will come to a realization that they never would have accepted through rational argument. It will be real, and they will remember it.
That was the process by which Socrates became a danger to the state.
As Mr. Krugman asserts business investment is linked to market demand rather than lower taxes, the corollary could be, lower the taxes on the middle class and lower or eliminate the taxes on the less fortunate and they all will have more money to increase demand. That will in turn increase business investment, business profits and improve the economy for all. You might call it a "trickle up economy." The only real resistance to that is that the wealthy will have to wait longer for their gains from a healthy system rather than deplete the resources and stockpile wealth immediately.
14
@BB
Actually, we call it Keynesian economics. He was the one who said it was about demand.
1
The tax cuts were always a giveaway to corporations and the wealthy, smoke and mirrors, bait and switch. Yet tens of thousands cheered for it at pep rallies, not knowing the mechanics of it all, as if cheering on their own demise. It was sad to watch at the rallies, very disheartening that greed would stoop to such misleading levels, hurting average people.
24
Well said. Good Analysis.
But don't forget that the $1,000 I saved in taxes, was spent on my wife's new washing machine and her imported handbag, which were subject to concomitant tariffs. Come to think of it, I think I'm losing money!!
9
Mr. Krugman, as usual, provides a clear and understandable critique to using taxes as an instrument of economic policy. He neglected, however, to point out the reason we have them. They pay for necessities we hold in common.
The GOP and their billionaire backers don’t think they need government services. Yet, aside from basic fairness, a topic worthy of an entire bible of words, everyone benefits in one of the most elemental ways. Water. We drink it, bathe in it, wash our clothes in it. Every day. Whether from a well or municipal water system, we trust what comes out of our taps.
A colleague from Sub-Saharan Africa was here for a business retreat last year. At a break, he asked me where he could buy some water to drink. I led him out of the meeting room to a water fountain in the hall. I told him that that water and tap water generally was safe in America, outside of Flint. He was confused and apologized for his lack of English, but did I say that water from any tap was safe in the US. I assured him that it was. The delight and amazement on his face was beyond description. “Welcome to America,” I said.
The anti-tax crowd would like us to have a society with very few haves and many, many have-nots — none of which can rely on the safety of the water. Multiply that by schools, roads, public safety, health care, safety regulations, a court system, etc., and you can start to understand what taxes do beyond economic policy. They are both inevitable and vital to our society.
21
@David Potenziani
One should add that the reason the wealthy should pay more isn’t just because they make more. Rather it is because, in making more, they proprtionally use more of these public goods. A fact that many of the well-to-do conveniently ignore.
20
@David Potenziani this is a phony debate. either we have a small govt, like our founders envisioned, with high growth/innovation/higher income disparity/low unemployment, OR, we have large govt with income redistribution, with low growth, high unemployment, less income disparity. its really that simple. there is no fre lunch. europe has higher unemployment/lower growth than us FOR A REASON. its NOT a coincidence. EVERYONE is happy to pay taxes for BASIC SERVICES. thats NOT what the debate is about. its about the whopping welfare state/income redistribution part of the govt that is swallowing up tax dollars, and the Fed govt intervening in our daily lives to an extent that would have sickened our founding fathers. just because FDR and LBJ created this behemoth doesnt mean its correct or justified. in fact, the data shows it has been mostly a colossal failure in reducing poverty. think for a moment-our Social Security money sits in T bills for 30 years earning 2%, tops. that denies citizens about a milion dollars if it sat in stock market index funds instead over 30 years. thats the price you pay when the govt is in charge of your money. you like the post office, or fedex? you like the DMV? you know why there is so much medicare/medicaid fraud? the govt is in charge of Other Peoples Money. thats the price of large govt/income redistribution, yet people pretend it doesnt exist. its free lunch!
cute, but no. rich people use the same water and air and roads as the middle class. and the mddle class has jobs because the rich open businesses and factories. so maybe we should make the rich pay less tax, as a thank you. @Kathryn Anthonisen
As a CEO for over 30 years, I can tell you that moving companies off shore for tax avoidance is not as simple as it sounds except for certain types of businesses. The bigger issue is that when companies get a profit hit due to lower tax rates, the money is spread to investors and top managers disproportionally unless the company is a super flat organization where there isn't a big gap in compensation between the top and lowest level employees. This, of course, is rare. The promise of short term higher profits do help increase market caps (i.e. stock values for those who own equities) of companies before these tax benefits actually kick in because analysts bake the estimated additional EBIT into their forecasted cash flows which drive the valuations. Bottom line: its way more complicated and far less predictable than what we read or hear. I wish we could set aside the political blame game and just focus on our problems and figure out how to help those who really need it. The never ending cycle of blame or credit for what happens in such a complex market by both parties has got to end because the country is clearly divided pretty evenly and to optimize the results requires a level of cooperation we've not experienced.
6
@AMM
I agree with end the blame game.
I live and work near you in Radnor. My observations are in your area I have never seen so much business activity as in the last two years. Older homes being totally renovated, new homes and shopping centers, old shopping centers being rebuilt, new schools and roads.
New restaurants all over.
New cars.
Impeccably dressed moms and kids.
Something right has to be going on.
But because of Trump hatred , you will see nothing good reported.
Ok fine lets go back to Democrat control and see what good that brings us.
1
Krugman is being disengenuous: "There aren’t many potential business investments that will be worth doing with a 21 percent profits tax, the current rate, but weren’t worth doing at 35 percent"
It makes an enormous difference in how it is FINANCED. If it can be financed a different way so the effective rate stays at 21% it will happen. But that in turn generates inefficiencies and distortions,
Hence, US companies have dealt with high taxes at home by gorging on debt (tax deductible) at home and keeping profits offshore, a scheme which then also benefited off-shoring etc. So the left screamed "loop-holes, no one pays that", yet only a fool would free to pretend there were no consequences.
A lot of the stock buybacks are not the CEOs taking profit, but the bean counters netting the left and right side of the ledger
An economist should give the whole picture, and value efficiency, and rue the detrimental impacts of inefficiency.
Financing in modern societies offers politicians space to not suffer directly from their stupidities. It also make pushing for punitive taxes in the modern world a fool's errand. Time for the left to recognize that.
The 21% rate may have been completely mis-sold, but then so was a lot of the stimulus in 2008 which sure as heck did not go where people said it would nor capped unemployment at the levels it was sold as a panacea.
Perhaps Prof Krugman can state whether he thinks the corporate tax rate was too high? It should be 35%?
For a self-employed individual under $100k it's a total of 37.3%. 35% would be great, thanks!
2
Anyone who understands tax rates and tax deductions knows that reducing tax rates generates less spending on deductible expenses. Employee costs (salary, benefits, taxes, etc) are 100% deductible. Reducing tax rates motivates businesses to spend LESS on salaries, not more. When people say lower taxes will lead to more spending on salaries they either don’t grasp this basic truth, or they are lying.
16
It wasn't so much a tax cut as it was a giant welfare check to the big corporations and the wealthiest. And the irony is that both of those groups are (and were) performing very well. The Republicans seem to believe that only rich people are deserving of democracy.
20
Republicans want to lower taxes to force Congress’ hand to lower spending. Fair enough. But why not just raise the minimum income at which taxes begin? This would be fair to everyone making enough to pay taxes, rich and poor alike, rather than favor the wealthy.
3
No one in business invests in capital and new facilities based on the tax rate. Those decisions are based on supply, demand, payback periods and rates of return.
And if the the perceived paybacks of paying down debt or buying back one’s own stock are better than those of new investment, the money will go to that.
And in over 30 years in business I have never seen or heard a single business leader say, “Gee, my taxes were cut, so let’s hire more people than we need.”
And, after years of warning us of the perils of deficits, the Republicans are now apparently great Keynesians, more than happy to burden our children with debt so the Kochs and Mercers can add to their billions.
This tax cut was nothing more than a political stunt to please the uber wealthy contributors to the Republican Party and the PACs that support it. It was on a par with giving a Medal of Freedom to Sheldon Adelson’s wife, which happened earlier this week.
31
In large measure the size and scope of the tax cut was political. The Republicans moved the ball to the one-yard line knowing that the Democrats would take possession of the ball either next election or the next. And they knew they would reap the short term benefits before Democrats (aka the adults)’would once again have to fix the problem. The Democrats will have to move the ball back up the field—increase taxes and spend on infrastructure and health care, and other social programs. Republicans will scream tax and spend democrats. And thereby gin up their base, that is every Republican on the face of the Earth.
23
I owe a small business. After the accounting is done this year if I get any benefit from the tax cut the benefit is going in my pocket because I know the tax cut is dubious at best. A slowdown is coming and I want to save the money so the company and myself can weather the inevitable recession. My guess in other corporate leaders are doing the same.
18
Growth and prosperity in a consumer economy is certain if consumers have more money to spend. Which consumers? The poorest.
Giving money to the rich has never grown the consumer economy. They don’t need shoes and cars, in fact, they don’t need anything that will grow the economy. What they do want is to protect their wealth, and increase their wealth. They are willing to take more risks with “found money” and when enough of them take advantage of de-regulation they transform the “markets” into gambling casinos and create “bubbles” like the 2008 bubble.
16
Corporate tax cuts increase profits, not demand. Businesses expand on demand. Tax rates are not where they were in 1979 so further tax reductions are subject to the law of diminishing returns. This idea ran its course decades ago. The public seems to understand that this tax law was very irresponsible. What happens to revenue when the economy slows? Of all the bad legislation written in the last 20 yrs this should be the first to be repealed.
15
Trump touts the tax cut as his great achievement. But it would be more accurate to attributed to the Machiavellian imaginations of Paul Ryan and Mitch McConnell. Trump's lies are often him saying whatever pops into his head, utterly unrelated to any reality. Ryan and McConnell on the other hand have been planning this tax cut for a decade, despite lots of evidence as Krugman states here that it was baseless all along. This wasn't Trump's fault, he probably believed Paul and Mitch, and he wanted the money. But the tax cut has been Republican policy for decades, and has been wrong all along.
Will Rogers joked that we should be glad we are not getting the government we are paying for. Now we are getting all of the government, and we are not paying for it, because our children will have to deal with the deficit the Republican party has created through this tax cuts.
18
Study the late 1990s. Clinton raised taxes to generate a surplus. Wealthy people had to decide to stay in placer and accept the taxes or invest in risky tech stocks. Those who invested got some tax relief and a huge boom resulting on a great ROI for their investments. Despite Milton Friedman’s hand waving or that of neocons, no one has ever improved on Keynesian economics.
9
The interest rates and principal repayment are begining to loom larger which isnt so fizzle. Lest caall this back ended obligations
that the rest of us are saddled with. But the stock repatriations kept the market high.
My "tax cut" raised my taxes by $3000. I live in an area where house prices have significantly risen. Many thanks Trump, McConnell and Ryan.
34
The federal income tax scheme is a legal license to steal from the middle class and the poor for the benefit of the rich.
The scheme provides deductions, credits, subsidies and lower tax rates. But only for certain industries, sources of income, business entity structures, securities and contracts favored by special interest lobbyists.
That is why Trump is hiding his personal and family income tax returns and business records from the American people.
21
@Blackmamba
I thought it was because his liabilities exceed his assets and he ran as a successful business.
1
good column. Economists as Krugman writes know pragmatically that the strongest influence on business investment are current sales or consumer spending. So cutting tax rates on business has only a very weak effect to boost investment and for monopoly corporations like Amazon or Apple no effect.
By contrast if $1.5 trillion had been spent as government spending on infrastructure, mass transit, schools, clean water projects, clean energy projects, highways and bridges, initial spending would have risen by this amount and then this boosts investment and job growth. This spending is actually government investment rather than private investment, but would have greatly improved our economy and well being more so than private investment in say opening another fast food restaurant.
16
Since investments are deductible from taxes, it just doesn't follow that cutting corporate taxes will drive more investment. You can play around with depreciation schedules to adjust timing of cash flows, but ultimately a company that reinvests its profits back into its growing business will not pay taxes on those investments.
However, buybacks do put cash back in the hands of investors, who can then reinvest in other companies that need the cash. I don't think this is actually happening, though. A great followup piece would be to examine where that money actually goes. My suspicion is that some of it ends up as consumption as baby boomers draw on their pensions, some gets pumped back into the same cash-rich companies that just bought back their stock, and some goes towards the frivolities of the rich.
3
With all due respect to Prof. Krugman, repeating the Republican rationale that the tax cuts were based on the nominal tax rate, a meaningless number, instead of the effective tax rate, not only reinforces the proponents' misleading mantra, but unintentionally undermines Prof. Krugman's analysis.
2
I share your thoughts completely what dems and Republicans never broach on taxes is what corporations actually pay. So if they rid some loop holes and made effective changes then a company now paying 21 percent may actually be paying more than it was at 35 percent thus the record tax receipts coming in.
The truth is, all this is actually simple, and it's hard to see why Republican boloney is so easily swallowed by so many.
Business investment takes place when sales projections go up, or when old stuff wears out. Period. Interest rates and business tax cuts have little if any impact -- if investment is needed to support sales, high rates make no difference. If investment is not needed to support sales, low rates make no difference. Claims to the contrary are a GOP fantasy.
Tax cuts for the rich do little to increase spending. The rich already can and do buy the stuff they want, and they simply put the excess into their bank accounts (in Switzerland perhaps?). To use taxes to increase consumption and thus economic activity, you need to cut taxes on the little guys, who really do need more stuff and will spend their windfall. Keynes called it "marginal propensity to consume," a simple concept that one seldom hears these days. Perhaps if more voters understood it, the GOP would find they can't get away with claims about tax cuts for the rich any more.
32
Spot on! Middle class on down should be paying little or no taxes. The tax burden should be borne by those who can most afford it — the wealthy. The wealthy have opportunities and access to money-making schemes that the rest of us don’t have. There must be a cost associated with that access and those opportunities— that cost ought to be a higher tax burden, without the loopholes! Just sayin’...
3
Let's not forget what tax cut is actually doing : 1. Decreasing income to the treasury . 2 . Increasing the National debt .
15
However, let's be frank, the tax cut did keep the donor class's money flowing to the Republican party. In this regard it was a success for the Mitch McConnell's, Lindsey Graham's etc. of the GOP world.
50
@Horsepower: Investing in political vandals pays off bigtime in the US.
In addition to buying back stock and personally rewarding themselves for great management, I suspect many corporations are hoarding cash to pay off debt. Years ago I was taught that a 2:1 debt/equity ratio was a road to bankruptcy. Now you have blue chip companies like Home Depot with debt/equity ratios 8, 10, even higher. So these companies will either have to roll over the debt at higher interest rates or pay it off. Or head toward bankruptcy.
9
@Carpfeather
We can see the number of companies that are filing for bankruptcy each year. For retailers it is no surprise since many make payroll by taking loans in addition to buying merchandise on credit. Tesla is a financial hot mess. Companies need to buy back stock and pay off debt if they wish to exist long term.
Since bankruptcy is so favorable for corporations, few seem to worry. If things get out of hand, they file, run up their debt again, rinse and repeat. Change the laws so that bankruptcy leaves them with "bare essentials" like personal bankruptcy does and you will corp debt vanish. But Wall St lives on increasing corporate and consumer debt so nothing will change.
4
Yes. And the USA debt/gnp ratio is racing toward the tipping point ; the point when bad things start happening to the economy .
1
@skramsv: Management hocks companies to the gills to take them private, pay themselves lavishly, and then remarket the debt-ridden shells back to investors.
The first thing that my former employer a large NYC based financial institution did after benefiting "hugely" from the tax cuts was to displace (aka discard) a very large number of employees myself included. Meanwhile this FI's 1990's era technology platforms are still in desperate need of updating and continue to be held together with electronic bandaids and bridges to equally old platforms from another FI it acquired in 2007.
10
I know many wealthy / high-income people, yet have never heard any of them say they were disinclined to work or invest because of high taxes. Even if taxes are higher, the math still holds that higher earnings bring higher net income.
16
What the powers to be don't see, don't want to see, and don't give a hoot about is that in capitalism the only thing that matters is profit to the owner of the means of production. It is that simple. To those of us who understand this system it is obvious that tax cuts will NEVER make a difference to those who have always been exploited.
23
We should not think of corporations as people (and neither should the law). The officers of corporations are not human beings, but rather roles, and a person who does not play the role is replaced by someone else who can and will. Corporate officers are like lawyers in that they are expected to play certain roles; they make money for stockholders the way that lawyers defend clients, and their true beliefs and feelings are irrelevant.
Corporations have no conscience or inner life, but pretending to have these gives them advantages in getting their way, so they are good at the pretense, the projection of an inaccurate image.
Corporations are like tools, except that they are more clever and devious than tools. They are most like beasts of burden or slaves engaged in the production of food, who will work hard to produce the food if given some of it but will constantly look for ways to get more of it and avoid working. They will pretend to be reasonable and friendly but will cheat at every opportunity.
Corporations have to be watched by an unfriendly external power. When they make their own rules and set their own standards, these activities must also be watched by an unfriendly external power. They are no more to be trusted than the players in sports can be trusted by the referees and umpires.
25
@sdavidc9: Gresham's Law applies to everything. If good conduct is not enforced in any activity, the bad will drive the good out of it.
1
As reported a couple of weeks ago, the top five families, including the Koch, Mars and Walton families, increased their net worth be 6,000%, yes, six thousand percent, since about the1980s...
As Paul wrote a few weeks ago, if anyone is wondering why Republicans continue to tout the failed concept of trickle down economics... there's your answer.
He also asked how it was that the American voter continued to buy into the concept... a question I've yet to hear answered.
61
@HammerTime: Their money trickles down Republican crony networks.
Very simple. Corporate tax cuts allow them to keep more profits in their pockets. Investment in the production of good and services is low compared to historical levels. Even Apple which does not a single factory is cutting those producers of important components for their iPhones. The thing is still stagnant despite the appearance which going through inventories gives at a superficial level.
4
Trump's tax cut did exactly what it was supposed to do namely increase the wealth of the rich by cutting their taxes.
The other supposed benefits were just lies used to get the tax cut passed.
78
@david
There's a reason the founding fathers were concerned about the creation of moneiied gentry through inherited wealth.
Here is another aspect of business decisions and tax rates that I think explains a lot. At a business tax rate of 21%, every dollar spent to hire additional workers or make a business purchase costs 79 cents on an after tax basis. But at a 35% tax rate, it costs only 65 cents on after tax basis. So, businesses are less likely to hire or invest at the lower tax rate than at the higher rate. Furthermore (and I think this is really born out by what we've seen happen whenever business tax rates are lowered) this also works to create an incentive to CUT costs and lay off workers. The after-tax savings of any reduction in costs is greater at the lower tax rate. This is the same principle that charities have known for years. It is harder to get large charitable contributions at a lower business tax rate, as the after-tax cost of the gift is higher than the perceived benefit the business receives (to its public image or perhaps genuine altruistic motivation) as a result of making the gift.
21
If the tax cut had targeted the middle class then it would had been more popular where folks could see an immediate impact on their wallet and bank account.
13
@damon walton
The top nominal tax rate through into the 60s was about 92%... America invested in infrastructure, schools, even put man on the moon...
1
All corporations ask only one question, where is the beef? Whether it is paying high wages, adding jobs or making investments are all depends on answering that question. The Republican tax cuts for corporations and the rich appears to be an egg on their face. Realizing this, Trump is proposing tax cuts for middle class, that would be a second egg on their face, because the middle class simply save it and will not spend it. The Republican Party despite all the evidence against their economic policies, still move forward like mules. The same thing with environment, despite all the scientific evidence on human made environmental damage, they pursue deregulations that damages the environment into an irreversible state. It seems to be that Republicans are following irresponsible policies for their own survival because all responsible policies are adopted by Democrats. As the people becoming aware of their failed policies, they adopted policy of deception and lying all the time to survive and that is the current state of the Republican Party.
8
The tax cut was a success in the only way that matters to Republicans: the rich got richer.
17
3.5% GDP growth. Unemployment under 4%. Only Paul Krugman and the Times which is full of hat for anything Trump could call the tax cuts a failure.
1
@Rob
No Rob, we are calling it a theft.
If the money had been invested in Infrastructure, a true return would have been realized.
Wisdom can not be found in "talking points". Repeating is not the same as reasoning.
54
@Rob --- pssst: "Deficit spending." Perhaps you have heard of it? As I remember, Republicans used to rail against it, insist it was the great vice of Democrats?
And then perhaps you might refresh your memory on Reaganomics and David Stockman? The WikiP says:
Stockman was quoted as referring to Reagan's tax act in these terms: "I mean, Kemp-Roth [Reagan's 1981 tax cut] was always a Trojan horse to bring down the top rate.... It's kind of hard to sell 'trickle down.' So the supply-side formula was the only way to get a tax policy that was really 'trickle down.' Supply-side is 'trickle-down' theory."[7] Of the budget process during his first year on the job, Stockman was quoted as saying, "None of us really understands what's going on with all these numbers," which was used as the subtitle of the article [by Greider, in The Atlantic].
After "being taken to the woodshed by the president" because of his candor with Greider, Stockman became concerned with the projected trend of increasingly large federal deficits and the rapidly expanding national debt. On 1 August 1985, he resigned from OMB and later wrote a memoir of his experience in the Reagan Administration titled 'The Triumph of Politics: Why the Reagan Revolution Failed' in which he specifically criticized the failure of congressional Republicans to endorse a reduction of government spending to offset large tax decreases to avoid the creation of large deficits and an increasing national debt.
1
@Rob Give it a year or two. I’d start stuffing cash under the mattress and not incurring any additional debt
President Trump is obviously implementing the Reaganomics, which is nothing but trickle-down economics. The right-wing, wherever it thrives, advocates laissez-faire and takes care of the interests of their tycoon cronies. Even in India, Prime Minister Modi, who claimed himself to be a Chaiwala (tea seller) and promised Achche Din (good days) for the poor and downtrodden, ended up bringing ‘achche din’ for his tycoon cronies by writing off a major part of the corporate debt in the name of bank recapitalization.
Leaders like Trump and Modi divert the attention of the commoners away from bread and butter issues by exploiting things such as religion, nationalism and racism. It is heartening to see that the people in the US woke up and voted for a change. Now it is up to the people of India to take a right decision to secure their future.
20
For years I’ve laughed at the notion that if you give a corporation a tax cut that they will pass their savings on down to their employees, at least without some sort of organized persuasion from those employees. The corporations, as we've seen lately, just use the profits internally, mostly to pay the guys at the top even more and for stock buybacks, that sort of thing.
Yep, I’m older, retired, and a member of a great big old union during my years at work. And those of us who worked in those years, get this, got specified raises, great health benefits (and other benefits) and yes, PENSIONS, not worthless 401s, when we retired. We weren’t stuck hoping we had retirement money; we knew we were going to have it, along with our Social Security and Medicare, and it was darned worth going out on strike to get every so often.
Now the younger generation says, “ooh, we can’t do this sort of thing... we might get fired, the company might move, and besides, the company just can’t afford it anymore” which is baloney; have you looked at the corporations’ profit statements lately? Maybe, just maybe, if you had voted for candidates who were worker-friendly instead of Trumpublicans who cut taxes for the rich and corporations you’d still have a voice in the living you make. You wouldn’t have right-to-work and organizing a union would be easier and wages and benefits would be better.
But youu listened to the siren song, over the years, of Reagan trickling down, and others, and then Trump.
215
@The Nattering Nabob
Well said.
1
"It’s a dirty little secret of monetary analysis that changes in interest rates affect the economy mainly through their effect on the housing market and the international value of the dollar "
Bingo! So when the U.S. lowered interest rates after the crisis of 2008, it was trying to lower (or hold back an increase) in the value of the dollar, thereby exporting its unemployment to its trading partners in Europe.
2
@abo: The value of fiat currency rests on its capacity to make more of itself when invested.
When i go to church and I put my money on the collection basket, I do that to help people in need, and not for the money to go to the wealthy member of the congregation. Mr. Trump tax cut/giveaway did just that: He gave money to the people who do not need it.
26
@Giorgio: And while the corporate tax cuts are permanent, the tax cut for the average citizen will expire. How's that for double dealing? I could not understand, when Congress passed that awful tax cut, why Americans did not show up and tell their legislators what they thought of it, as they did when the Republicans were trying to take away health insurance. Our debt (or deficit; I don't really understand the difference) is going to go through the roof, and they will be coming for our so-called "entitlements": Social Security and Medicare, which workers pay into with every paycheck, so they are insurance programs that we paid into, and Medicaid, which is an entitlement that feeds many elderly people and children living in poverty. Heck, hasn't the Congress already cut food stamps? Can't have those children being fed too well, can we
28
"Unfortunately, it’s difficult to get politicians to understand something when their campaign contributions depend on their not understanding it."
Of course the same reasoning can also be applied to Social Security, health care including the ACA, Medicare and Medicaid, and government investment in such things as national infrastructure and public education.
But the elephant in the room is still our lack of serious effort to mitigate and reverse global warming and climate change. Climate change is the merciless predator that stalks all of us. The rich can line their coffins with their ill-gotten gains. The rest of us will not have that luxury.
Keynes famously noted that in the long run we are all dead. Unfortunately, we don't have that long.
21
The final sentence is a masterly summary of the fundamental issue with representative democracy: lobbying and campaign financing.
14
Great analysis of the Trump Tax Cut. I read your wonkish piece and this column. It is obvious to that you put more work into this analysis than the troops in the White House and OMB.
The 2017 Tax Cut, thus far, has reduced tax collections and caused the Deficit to swell as far as the eye can see. https://www.cbo.gov/publication/53651#section4
The harm caused by the increasing deficit comes from the loss of economic and political flexibility of the U.S. to respond to the huge backlog of needed repair, renewal, and maintenance of our common infrastructure. It will be politically difficult to pass required appropriations, even though the fires in California and the storm flooding in NC and SC has destroyed a lot of the infrastructure, and people's homes, businesses, and lives.
Unfortunately, the wilding weather caused by the rapid increase in atmospheric global warming gasses and very unsafe, aging infrastructure is not going away.
Climate Change is a problem of the whole planet so we need to change our diplomatic approach. I have been reading the history of Dumbarton Oaks and Bretton Woods and think there were some approaches that the U.S. should try on international funding of technical fixes to making the shift from fossil fuels to other sources of energy.
It will not be easy, managing this dislocation of this major energy industries will probably be the most challenging task of the Century. Clearly, we must make a policy start and be ready to implement in 2021.
25
Berkshire Hathaway has done very well in the past by spotting "undervalued" companies and buying their stock. Recently they have been investing in their own stock. This is because Trump's tax plan caused many companies to repurchase their own stock, raising stock prices generally, so there were no longer any "undervalues".
The lasting effect of Trump will be the flight of major int'l companies to valuing their transactions in currencies other than USDs. We will suffer when the dollar is no longer almighty.
3
"Unfortunately, it’s difficult to get politicians to understand something when their campaign contributions depend on their not understanding it."
Those Democrats who lived off huge corporate donations had the same difficulty of understanding.
That is why we had to clean out the Democratic Party first, so we have a real option. We've done fairly well at that in the last two years, though it is far from complete.
4
@Mark Thomason the poor republicans are barely getting by with Koch and Adelson money. Might want to look into which party cleans up an economic mess
1
@Mark Thomason: Cleaning out the Democratic Party by choosing Trump is like saving the village by destroying it. We have now a conservative Supreme Court for a generation to come, our social safety net in peril due to the trillions added to the debt, the ACA undermined instead of improved, environmental and consumer protections deregulated, international standing destroyed, and the flames of fascism fanned by an ever more out of control president who emulates dictators. Under president Hillary Clinton that would never have occurred. These are all huge setbacks that will take years if not decennia to clean up before we are back at where Obama left, if the Democratic Party ever gets the chance to do so. Or is the Democratic party still not perfect enough for you and do you wish we need four more years of Trump to make it even more perfect? It seems so. Luckily the majority of Americans is not into radicalism, whether it comes from the right or the left.
@Anna -- Then you should have cleaned it out yourselves. One way or another, it had to be done.
"Unfortunately, it’s difficult to get politicians to understand something when their campaign contributions depend on their not understanding it" is a variation on a quote attributed to Upton Sinclair. Credit where credit is due.
2
@MEM
Upton Sinclair also said:
Fascism is capitalism plus murder.
A good case could be made that unaffordable or no healthcare, environmental pollution, driving people into poverty, and ignoring climate change pretty much satisfy the murder part.
11
It seems to me that if lowering taxes on the wealthy is good for the economy than we should eleiminate taxes on the wealthy altogether! Seems this would stimulate the economy, the wealthy would get wealthier and the middle class folks could pay all the taxes. What could go wrong?
22
Krugman throws out "it’s difficult to get politicians to understand something when their campaign contributions depend on their not understanding it' waiting to see who recognizes Upton Sinclair's “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”
Do I win something? Or am I late to the party?
5
Dr. Krugman, I rarely hear mentioned one of the most basic facts of business - an investment is tax deductible as an expense. Hence, the investments are not funded by post-tax dollars but pre-tax dollars, and thus are not susceptible to influence by tax rates. Am I missing something? If not, why hasn't this been widely publicized, namely, that investment incentives are not affected by tax rates?
17
While this kind of column is certainly informative and helpful, maybe what we need is headlines--announcing that THE TAX CUTS ARE WASTED ON THE RICH and subheads like "Deficit increasing, expect cuts in Medicare." Some people don't read below the banners.
49
The promised Republican corporate tax cut trickles,
have historically proven to be remarkably, quite fickle.
Upward flowing, not downward, to plutocrats amongst us,
while workers still continue to commute, using their buses.
13
For all the noise and the visceral punches of his lies, Trump's silences are equally as telling.
Silence: about the raising wave of domestic terrorism, its random violence loosely connected by ideology and madness, violence that is a blood lust of hate showing up in clubs, shopping centers, grocery stores, places of worship, where former mass shooting survivors are killed, a survivor of the Holocaust was killed--and Trump is silent.
Silence about the dying children in Yemen whose starvation Trump helps fund.
Silence about the disruption of supply chains and pricing his new taxes/tariffs have caused.
Silence about a deteriorating climate.
Silence an awful lot of what matters.
137
The Republican doctrine on cutting taxes on the wealthy is a nifty (haven't seen that word in a long time, have you?) perversion of a basic economic principle. It goes under the heading "capital formation". It holds that for a society to progress, there must be enough capital produced overall that some of it becomes sort of excess money, waiting to be used for good purposes (investment). Under this principle, some people getting rich while the rest of us don't, or suffer, is okay because those rich folks will invest that excess money and jump start a prosperous village/city/nation.
Republicans distorted/perverted this concept for political purposes. They have steadfastly held that the rich getting richer would help everyone so, hey, don't worry about it, dude.
The thundering, fundamental flaw is that it doesn't work all the time and probably doesn't work much at all in a nation previously swimming in available capital. It assumes economic principles faithfully predict human behavior when they don't. The rich like having money and they do with it as they please. Generally, they don't seek risky investments in new processes or businesses because they are risk averse.
Capital formation in the hands of people of modest means works much better, because they are generally the people with ideas and a desire to improve their lot. The rich are fat and happy and want to stay that way.
When sound economic theory is beaten into political currency, its value goes down, fast.
24
The tax cut is much worse than a fizzle and that is because not long after it was enacted Mitch McConnell and his fellow republicans made no attempt to hide who will ultimately pay for it. Virtually no one believes the ridiculous republican claims that it will pay for itself. By openly suggesting that programs like Social Security, Medicare and Medicaid would need to be slashed to help pay for the resulting deficit, it became obvious that the republican tax cut is a giant transfer of wealth from the middle class to the republican donor class as a quid pro quo.
105
Corporations spend tens of millions to fund the scheme that you call accounting manuevers as a substitute for your deliberate slip, cooking the books. It is a practice so arcane as to be opaque, but it is still against the law, snicker, snicker, wink wink.
The GOP has favored the destruction of government functions except for the military and this lying and cheating has been overlooked and condoned by them for over all purposes. So when Trump , the ultimate liar and cheater, the GOP see this as just normal practice sanctioned over decades. Please note the law applies only to small fish, like you, me, immigrants and the poor who are warehoused for relatively petty crimes.
Somehow we think that when someone puts on a tie his crimes are justified for the growth of the economy, but as the last great recession shows corporate crime is vast and has the power to destroy our economy excepting of course those who sock their wealth away in off shore accounts knowing to what their crimes will lead,ultimate collapse and the suffering of the poor which the 99 percent will invariably be.
19
When Republicans, like conservative parties the world over, talk about individual liberty and too much government, they actually mean that they want the liberty to capitalize their profits, but enough government to socialize their losses.
39
It really does beggar belief as to how anyone who struggles to pay their bills could still enthusiastically support Donald Trump's economic policies.
The wage gap in this country is so extreme that it's difficult to even substantively discuss, as it would evoke immediate, and potentially irreparable outrage.
42
The economic benefits of the tax cuts were clearly overstated. We may be headed into a recession soon... if that happens the Republicans will lose the only positive to having them in power.
8
Those tax cuts are much worse than a “big” disappointment.
Most people recognize it for what it is: “Robin Hood in reverse”, robbing the poor to give to the rich. An enormous wealth transfer to the very wealthy (including many wealthy foreigners) from many millions of Americans least able to afford it.
Alas, it’s more than that. The fiscal imbalance between federal revenues and expenditures places us in grave strategic danger.
“Deficits as far as the eye can see ...” during Obama’s years are now Mt. Everest size. Should Trump’s absurd bromances with authoritarians Putin and Kim coupled with his deliberate efforts to challenge China while undermining and even sabotaging the N.A.T.O alliance lead to a military confrontations in Europe or Asia (or both, simultaneously) Mt. Everest-size deficits will be happy memories. $9.5-billion a month borrowing will instantly balloon to $25-billion, or more, to pay for high-tempo military operations. All that money coming from whom, and from where?
After federal spending explodes to near-incomprehensible levels ordinary Americans will soon find themselves paying for it in countless ways not for decades, but generations.
It will be the death of our nation as we know it.
At some very deep visceral level most people sense this.
22
@Steve Singer
As for my “$9.5-billion a month borrowing will instantly balloon to $25-billion”, example, in actuality, it’s ten times worse: $95-billion per month (~$1-trillion annual deficit in 2018) and $250-billion per month (~$2.5 trillion annually.
3
@Steve Singer
And ... I heard today that the Watson Institute for International and Public Affairs at Brown University calculates that the U.S. has spent, or is obligated to spend, $5.9 trillion for wars in Afghanistan, Iraq and elsewhere since 2001.
The fundamental problem with the trickle down hypothesis is that wealth has no interest in 'going down'. And given that it cannot create demand on its own, why would consolidating wealth create jobs? Apple cannot sell one more iPhone at a corporate tax rate of 21% than at 35%. No new iPhone buyer, no expansion of the business.
Trickle UP... so sensible. Granted we don't get the roads, bridges, ports, RR stations in a day like Apple can buy back stock with its trickle down tax break. But every day workers mine the iron, make the steel, build the bridges, etc. and then they want to buy an iPhone! Is that a win win win? We all get a decent RR station. Working people get iPhones. And Apple has a reason to invest and expand its work force.
In a way, Trickle DOWN is like communism. A small number of the wealthy get to decide what all of us need through their power of the purse. Trickle UP is like... like... democracy/capitalism. The many get to decide through their expressed preferences.
15
The tax cut was a fizzle as far as getting votes for Republican candidates. The reason is that voters realized the cuts didn't help them.
Most people are smarter than Republicans think they are.
18
@janye
I'd like to agree but we have 40-50 years of experience that tells us otherwise.
Aha! Lower taxes don't matter, or create any incentives?
Why have so many businesses moved from high tax states to low tax states, to Texas for example? For the weather? The San Antonio business development manager told me that California was his main focus to lure businesses to San Antonio; luring manufacturing companies to move was like taking candy from a baby. The reason is obvious, lower taxes and a friendlier business climate.
Professor Krugman knows this; he is no dummy. Pretending that tax rates don't matter is ideological, not a logical conclusion based on empirical evidence.
2
It helps to read the article before posting, Stew R.
Professor Krugman is not saying that tax rates don’t influence corporate behavior; he’s saying that corporate tax cuts don’t influence corporate behavior in the ways their proponents promise. Sure, everyone likes paying lower taxes and keeping more of their earnings. But, moving jobs from one state to another - so you can pay lower taxes - is not creating new jobs. And your “friendlier business climate” is frequently just another way of saying “a place where I can make others pay the environmental and social costs of my doing business”.
Look at what’s actually happening with the corporate tax cut: stock buy-backs, not investments for growth.
20
@Paul
People invest for multiple reasons; where they invest is influenced by tax rates. I'm glad you agree. Texas or California? The U.S. or Mexico or China or France? Social Democratic Europe had corporate income tax rates below America, in many cases substantially lower, not because they didn't want high tax rates. They understood the futility of this; they would not be competitive in global trade.
American company leaders are not unaware of tax rates, and where their investments are welcome. And where our progressive friends consider them gooses to be plucked with abandon. They have choices. Decide to have high corporate tax rates at your own risk; even semi=socialist Europe knows better.
1
As long as government is used to enrich a handful of people, while keeping the lid on discontent by brushing a few crumbs off the table, tax policy is just another way of rigging the economy to benefit those who think too much isn't enough.
The basic premise of America is equality before the law.That becomes a joke when wealth disproportionately skews political power and undermines democracy.
Trump's tax cut was a naked act of greed that totally obliviated any notion of responsible planning or budgeting for national priorities. The money mafia around Trump could barely keep from giggling as they took turns doing stand up comedy about turbo-charging corporate investment, massive new revenues, higher wages, no social program cuts and also cure cancer and prevent hangnails.
We knew what they were doing. They knew what they were doing. But aside from Krugman's alarm sounding, the main-stream media was all too happy to echo the jokes plied by Trump's economic clowns.
Trump's grand vizier, Majority Leader McConnell, chimed in with "read my lips: no Social Security or Medicare cuts." just a day after celebrating their tax scam victory, McConnell put on his big boy pants and intoned somberly that it would be fiscally necessary to take a chainsaw to social spending.
The answer to why the tax cut fizzled is simple: it didn't for the ultra rich and corporate bosses. And it didn't for Trump who doesn't pay taxes.
The fizzle joke's on us.
16
Although it pains me to admit this, and I don't often read Mr. Krugman, this sounds about right to me. After a world historical experiment with low interest rates, it's hardly the case that business was starving for capital. A bigger point that is perhaps worth making is that post the Great Depression, way too much attention was paid to the "macro" economy, if that really exists. The cyclical nature of industrial development freaked everybody out, starting arguably with Marx, because you saw people working in very harsh conditions, and then, boom, they lost their jobs. But it's not clear that this has great relevance to a post-industrial economy. The financial crisis was bad regulation -- perhaps Mr. Krugman would call it cumulative causation -- starting with zoning laws in CA that led to high prices that encouraged banks to come up with dumb mortgages, a stupid decision by the Clinton administration to promote housing and especially for blacks (the Jesse Jackson shakedown not being irrelevant here) in combination with the Robert Rubin desire to encourage bigger banks (Jackson and Rubin being related via CRA and merger approvals), perhaps excessive accommodation under Greenspan, a feckless Bush administration when it came to Fannie, etc. but also the white label nonsense. Long story short, it was not taxes. Tax policy should be geared to raising the necessary funds for public goods, tout court. Enuf said, and I am running out of space.
2
What do productive people owe to the unproductive? And, why are leftists indignant when it's suggested that the unproductive owe anything to anyone? A tax cut is a return of capital to its rightful owners, not an undeserved transfer payment; it isn't a gift given by social dependents to the hardworking people who earned it. If the needs of layabouts are paramount then productive people are their slaves; talk about your 'trans-valuation of values'! The entire discussion of how corporations, really their shareholders, do not deserve a return of their own capital and criticism of what they do with it when they get it, because they do not spend it for the benefit of the non-self-supporting section of the population, is false from the start.
1
@Ronald B. Duke
They owe what a democratic polity says they owe. They're not "productive" except in the context of markets narrowly & society more broadly. Try being a productive software engineer where there's no internet, protection for intellectual property, no educational systems to train people to build complementary hardware & software, etc. All that arises where there's a functioning society & polity. There is no ability to produce outside a modern societal framework, even, amazingly at the hunter-gatherer level.
Better to argue that this system of taxation is less effective, reasonable, productive than some other. Argue that this or that scheme creates counterproductive incentives trapping people in poverty. Any of that is useful thought, but this chimerical notion that there is residing in persons a quality called, "productivity," apart from a society and a market is an vicious dead end. The terminus is that place where taxes are theft enshrouded in a fog clouding the perpetrators. Do we indict individual Medicaid recipients or the state of Mississippi are at a given moment receive more from than they pay into gov't?
Alas conservatism tinged w/ libertarianism is stuck bc it can't understand that while it's capable of relevant insights, a failure to understand individuals, extraordinarily impt though they are as the focus of analysis, aren't rhe whole story. Pretending they are leads people to overlook what's useful in the perspective.
8
@Ronald B. Duke,
No. First, you're conflating hardworking people with the rentier class of people with money. Next, by saying a tax cut is a rightful return, with no qualifications, you are generalizing to the point of absurdity -> maybe we should have no taxes at all. Government only when it suits the oligarchs?
6
@Ronald B. Duke What do you propose to do with all the excess labor in the USA lately? People who have not figured out a way to be productive in today's economy?
I know it wasn't the focus of his argument, but the biggest issue I have with this article is with it's first sentence:
"Last week’s blue wave means that Donald Trump will go into the 2020 election with only one major legislative achievement: a big tax cut for corporations and the wealthy."
Why does that have to be true? Don't get me wrong, Trump is a traitorous, criminal goon who should be impeached ASAP and jailed in the near-inevitability that it's determined he colluded with Russia to subvert our democracy, which he almost certainly did. And democrats need to get the ball rolling on that as soon as they're sworn in, and it can start with releasing his tax returns.
But while they're at it, why not get some work done? Trump is glad to cut taxes on the rich, take away people's healthcare, whatever- but he's quite happy to do the reverse, as long as it doesn't affect his own pocket book. He really doesn't care AT ALL about policy. Just power.
Furthermore, Trump spent his entire campaign making crazy promises- not just about getting Mexico to pay for some stupid wall, but about EVERYTHING- he promised to raise taxes on the rich, he promised to give everyone better healthcare, etc. etc. And his fanatical supporters favor most of that stuff. Why not hold his, and the GOP's, feet to the fire? Everything that's populist, that might benefit the country, that might reduce the gap between rich and poor, should be pursued.
I see this as a huge opportunity.
1
@Dirk Because there's nothing Trump wants to do that the House will allow. Remember the Hastert rule means the "majority of the majority" has to approve a bill before it even hits the floor.
3
@Big Fan Democrats don't follow the "Hastert Rule"; that's just the Republicans. But anyway, the Democratic agenda in the House is unlikely to provide Trump with a win, unless he actually wants to fix the nations' roads and bridges.
4
@Susanna Trump's infrastructure "plan" was to invest minimal amounts of government money and farm the balance off to profit-making entities.
"That doctrine is all about the supposed need to give the already privileged incentives to do nice things for the rest of us. We must, the right says, cut taxes on the wealthy to induce them to work hard, and cut taxes on corporations to induce them to invest in America."
Tax cuts alone are a partial solution - they should be combined with spending cuts. Both parties are in love with big government. They have no problem spending taxpayer money in ways designed please their base and stay in power.
3
@hm1342, how strange that only GOP presidents double and triple the deficit, while Democratic presidents cut deficits. It's almost as if the GOP plan was to deliberately explode the national debt.
Tax cuts to corporations and the wealthy aren't a solution to anything for the reasons Prof. Krugman outlines. First, there was already an excess of capital in the economy, so adding to that capital wasn't going to produce corporate investment. Businesses invest and grow when there's increased demand. For increased demand you have to aim tax cuts at the middle class, but you do this as stimulus when there's a recession. There's no reason to do it when the economy is humming and you're already at full employment.
Are you proposing cuts to entitlements to pay for this corporate tax cut?
5
@hm1342,
Start the spending cuts with wasteful things of dubious value, like an absurdly expensive border wall.
We can then move on to cut farm subsidies for gmo corn. et al. Corn to ethanol is also absurdly wasteful, when there are much more efficient alternatives.
Cutting off foreign aid to ruthless dictators also sounds good.
After that we can start looking into the practices of defense contractors, and their lobby.
Re-examine "the war on drugs", which has caused more heartache than it ever cured. And the profiteers associated with that war.
Obama increased the debt significantly. Maybe Trump will too. But both parties do it.
1
"Which brings me to the problem with conservative economic doctrine."
"That doctrine is all about the supposed need to give the already privileged incentives to do nice things for the rest of us."
Dr. Krugman is too generous with the explanation. Just call it by its real name: Ronald Reagan's " Trickle Down" Benevolence-Package-Con-Job.
Unfortunately, what's being trickled-down upon the masses, is unprintable.
10
"When their campaign contributions depend on their NOT understanding it." Delightful! So succinct! To the point!
Reminds me of a story (sorry!) Mr. Lincoln told when running for President in 1860. And I know--I've trotted it out before.
Church of England bishop arguing with a dissenter (i.e. NOT Church of England). Discussing a passage of Scripture. Whatever it was, it seemed perfectly clear. Straightforward.
"I"m sorry," remonstrated the bishop, "but I just don't SEE it--I just don't SEE it."
Finally (exasperated) the dissenter stuck his finger on the passage. "Well, sir," he replied, "do you actually SEE the passage now?"
"Oh yes."
"Good!" said the dissenter, fishing a gold sovereign from his pocket--
--and STICKING IT OVER the passage in question.
"NOW--do you see it?"
Well, sir--the motto seems to be:
"Where ignorance is bliss,
"Tis folly to be wise."
Lotta gold sovereigns flowing in. From all over the place. Ignorance (when all is said and done) has pretty deep pockets.
And here the Celtic tiger--
--was a ginger cat after all.
Miaow.
Thanks, Mr. Krugman. Instructive as ever.
2
Seems to me I've read this from Prof Krugman efore
...'cuz Trickle Down has never & will never work ....
8
In the 1980s, I worked in the US pharmaceutical industry. At the time, there were huge tax incentives to have some operations in Puerto Rico. The value-added from what were basically packaging plants in Puerto Rico was overstated by multiples of the real value added there. You would have to believe that all the R&D and manufacturing were performed on the island. So much for corporate tax incentives.
Now I work in the biotech sector. For senior execs, the real bonuses are give-away stock options. CEO get huge stock grants that make stock buy backs the best personal investment that they can have the company make. The money saved on corporate tax cuts goes right to corporate stock buy backs. So much for corporate tax cuts adding jobs.
17
The main problem is that tax cuts are welcome for whatever the reason given and public debt is not perceived as affecting individuals until interest rates start to reduce their disposable income. Once the government starts competing for money with individuals, the public perception of big tax cuts will change.
Another problem with economic policies is the excessive influence of investment bankers. They just don’t see the economy the way that most other businesses do. They do not appreciate the day to day details of running businesses that create wealth and they cannot factor in those considerations in their thinking. Most businesses are more concerned with sales than with interest rates. They have to have commitments before they borrow money. They have to have profits before they can enjoy tax cuts.
4
@Casual Observer True but what you are referring to is called "crowding out" which means interest rates go up across the board because the Fed is borrowing so much money. I've never known of that to happen in real life.
2
Professor Krugman should clarify the coopting of the conservatove movement by the ultra-rich radical, robber-baron libertarians on the right, whose wealth is generated primarily from the work of others (employees or their parents' employees, derived often from public resources such as fossil fuels). Traditional conservatives averse in principle to broad government participation in the lives of citizens have been absorbed by the Charles Koch radicals who see their wealth as irrevocably theirs.
For Koch, civil rights laws, labor laws, social security, government-supported health care benefits are not public goods properly promoting freedom from want and bigotry for less well-off citizens; these laws improperly (in his view) rely on taxation of extreme wealth to benefit others than the rich. The more numerous unwealthy, for the Koch contingent, infringe liberty with laws that "steal" the rich's wealth. The Paul Ryan/Mitch McConnell crowd deceive and mislead the more populous non-wealthy to drive major tax cuts forward.
For decades this Koch group has quietly undermined American democracy, and worked to return Constitutional law to pre-Depression principles that favor the wealthy. They have now captured the Republican party. It is no surprise that Republican-controlled states contrive laws to suppress the voting rights of persons protected by our public interest laws. Professor Nancy MacLean's recent work exploring this crippling of American democracy, is essential reading.
17
@Gary Scharff Jane Mayer's "Dark Money" is also enlightening - if depressing.
@Gary Scharff,
beautifully stated!
As Krugman notes, the Republican tax cut was a big fizzle in terms of any impact on growth or jobs. However, it did succeed in blowing up the fiscal deficit.
An analysis that puts this all in a longer term context, through a series of charts, is posted at https://aneconomicsense.org/2018/11/14/the-economy-under-trump-in-8-charts-mostly-as-under-obama-except-now-with-a-sharp-rise-in-the-government-deficit/.
The economy is indeed growing. But that growth is much the same as it was under Obama. The same for jobs and unemployment. But what has changed now is that the fiscal deficit is rising, primarily due to tax cuts. And the Congressional Budget Office is forecasting that, even under a scenario where the economy remains at full employment, the deficit will be close to $1 trillion in FY2019 and more after.
This is unprecedented. Never before, other than during World War II, has the economy had such high deficits (as a share of GDP) at a time of full employment. And when the downturn comes (and there always eventually has been a downturn), the deficits will be gigantic.
7
I believe there is one business decision that has, historically, been influenced by income tax laws: how much goes directly into the pockets of the owners and their top executives each year. When 70 or 90 percent of additional millions in pay or dividends for these individuals would go to Uncle Sam, the smarter decision was to keep more of it in the business for expansion and improvement, limiting exposure to those tax rates. The calculation by tax accountants under such conditions was to use that money to grow the value of the business for eventual sale, at that point paying much lower capital gains tax rates and reaping the rewards of having deferred personal gratification.
14
What a limited imagination, what small mind, what a closed world view it must be to have massive amounts of money, and want yet more. What a 'blinders' perspective, to think that even more of something you can't use more of is a satisfying result. In theory, of course, it's foolproof. If having sufficient money is good, then having even more money is even better. However money comes at a cost. I was told once, when articulating my hobby of collecting sports cards, "Well I collect dollar bills.", as if the two had some equity. There is, regardless of what is legally possible, the moral toll of having money that the owner knows could be doing so much more elsewhere.
7
The idea that if you give the rich more money the rest of us would prosper too is as delusional as that climate change is a hoax All that has resulted is a decades long wage stagnation and a wealth transfer from the poor and middle class to the rich
Reagan sold Trickle Down Economics as well as he used to sell 20 Mule Team Borax Soap on TV He also got workers to turn against unions as their voice in the labor market and relied on their corporate bosses to look out for their interests That's about as logical as slaves relying on slave masters as their best chance at freedom
How many jobs in our so called full employment economy are low paying service jobs or people working multiple jobs to make ends meet? Turning modern day workers into indentured servants with little hope of upward mobility is not exactly a thriving economy except for those at the very top
Many economic studies have concluded that upward mobility in USA is a thing of the past
The idea that you help the poor working and middle classes by transferring wealth to the already rich is as delusional as the flat earth theory Yet Reagan and the GOP sold this malarkey to USA and it became dogma rising to the level of religious doctrine in economic and political circles
It amazes me that ordinary Americans can be so knowledgeable when it comes to sports sophistication yet function like kids believing in Santa and the Tooth Fairy when it comes to economics
22
Well said Dr Krugman. I wonder why you didn't delve back to the Nixon tax cut; that instead of producing jobs as promised, resulted in corporate consolidation and a net job reduction (remember WIN? Whip Inflation Now?). This has been repeated with every GOP president to present. How many times do the GOP need to trash the economy before people catch on? We are at 5 times and counting.
Good point the booming economy in 2014 (without a tax cut), and also point out the last 21 months of the Obama administration created more jobs than the first 21 months of the Trump administration. This "boom" was happening for 75 months of the Obama administration before Trump took office.
39
1. As a tiny business owner, we will pay less in taxes under the current regime.
2. As a grandparent, I am horrified at the debt we are foisting onto our grandson.
3. Keep the corporate tax cuts and repeal everything else.
3
@davebarnes
How about as we make more money, we pay more taxes Progressively upwards to a point of 100% ? (say at 1 billion dollars per tax year) At the same time, why don't we cut back a fraction of the military ? (say 25% -which would still leave it multiples more than anyone else combined)
Throw in eliminating the FICA cap on Social Security and think we have a deal - Aye ?
21
@davebarnes
Your #3 tells me you must save a sizable investment in securities but you aren't wealthy enough to be in the 1%. If we repeal everything but the corporate taxes I think we should also increase estate taxes.
1
@davebarnes
The corporate tax cuts ARE the debt!
7
Well maybe. Not investing? OK. Not showing up in jobs? Which numbers are you looking at here? Wages? Hit 3% for the first time in ages, hardly sufficient but the right direction. My guess is the small business tax cuts are doing the right thing. The cuts for FANGS, oil drillers and real estate tycoons, not so much.
Look Paul, I detest the guy too. But this cherry-picking of the facts about the state of the economy hearkens back to the dark side. Bad management caused the wildfires in California. Uh-huh.
All except the base, who would support him in a depression, get what you’re saying. That’s why there was a blue wave. Tax cuts for billionaires paid for by reduced medical benefits for the poor. While there was a wave, few are arguing that this guarantees the right outcome in 2020. For that to happen, the Dems need to make it clear that they are prepared to stand up and support the middle class. The single best way to do this is to, clearly and loudly, repudiate the neoliberal free trade doctrine that has decimated our heartland. Trading jobs for Investments in Treasury securities has been a losing strategy for this country. The cost is measured in the existence of an Administration that is threatening our basic freedoms.
1
@Rich888, would you please define what neoliberalism means to you? I've seen this term thrown around a great deal, and it seems to mean something different to every commenter. Are you talking about the laissez-faire economic doctrine of the 19th century? Of are you referring to modern international trade agreements like NAFTA? I'm assuming you know the latter was a net gain for the middle class. But I agree that we need to have a plan to revitalize the industrial belt, which suffered job losses. I just don't think we do that through trade wars.
3
The "tax cut" so far has yielded me only a net tax increase by redefining the few remaining benefits as taxable income.
The larger and more destructive undercurrent is that no administration of the last several has been working against the tide of monopoly building which results in monopsony in the labor market and a net decrease of employment in general. This in the face of soaring student debt, marginal employment and few if any remaining benefits cannot help a country stay vibrant, particularly after being abandoned by its economy's owners in favor of tax havens and offshore repositories.
None of Trump's daffy lunges and edicts have affected the reality of this beyond playing to the open mics of the GOP State Media echo chamber.
4
A further point, missed in this article, is that top marginal tax rates dont matter much to large multinational corporations. Capital easily crossed boarders already and tax evasion, primarily via the movement of IP and associated royalties, is rampant.
as long as corporations can pay royalties to their overseas subsidiaries which "own" their IP, cuts to marginal tax rates are not going to matter. and corporations will continue to use the proceeds for stock buybacks, not investments.
11
The point in Prof. K's column about monopoly rents cannot be stressed enough. So much of corporate income today is not true profits, in the traditional sense of the term, but rather represents "rental" income assessed to consumers as a result of the exclusive monopoly enjoyed by many sectors of the economy, from Facebook to Amazon to the airline and entertainment industries, among others.
The idea that these monopoly rents are entitled to some kind of special tax incentives for providing some social or economic benefit to consumers is ludicrous on its face, yet it remains a staple of GOP economic policy, reflecting as always the financial interests of its powerful and influential donors.
13
If I've said it once, I've said it a thousand times, Paul Krugman, is deserving of the Nobel Prize. I'm a follower of corporate tax cuts, and corporate taxes/taxes on the rich in general. It doesn't take a Nobel Prize to follow what Paul is saying, then going to say ITEP for example, and read the analysis on corporate taxation, and why the Republican lie, about cutting corporate tax rates spurring job growth. There is no empirical data to show that is the case, in fact what the empirical data does show is just the opposite.
When Warren Buffet goes to invest money, he doesn't think of the tax ramifications, if he did, he would never invest money, no one would, Buffet has said exactly that. Buffet has also said that taxes need to be raised on corporations and the rich, because that's how a progressive tax works, the more you make the more you pay, with a ceiling. I don't advocate a corporate tax rate of 70% or a personal tax rate of 80% plus on the rich. As a history lesson, those tax rates weren't grabbed out of thin air, they were the tax rates pre-WWII, and post WWII, the personal/corporate tax rates didn't start to drop until Nixon started it.
So what you do get when corporations and the rich don't pay their fair share of taxes, they starve the government of money, which starves our schools, roads, healthcare, and much more of that money. While taking it from working class Americans to line their own greedy pockets. Democracy only works if we all contribute, period.
180
@James Young
Beg to differ a bit about the top personal tax rates. Google "Federal Individual Income Tax Rates History". They started falling (from ~90% range) under Kennedy, who lowered them to 70%. Then under Reagan to 50%, who apparently thought that was a fair rate but which is one that would start today's "conservatives" frothing at the mouth.
9
@James Young
I do advocate Eisenhower top marginal rates of 92% individual (or FDR rates of 94%) and top corporate marginal rates of 50%.
And it was Kennedy who started the tax rate to the bottom race, not Nixon. Reagan of course greatly accelerated it.
10
@James Young Buffet is my hero. When he spoke of the unfairness of taxes by comparing the 17-19% he pays on millions, versus the 30% his assistant pays on I’m guessing a six figure income. Not to mention the loopholes.
17
The strongest evidence that tax cuts do not help is Kansas. Ireland is a very complex case since the accounting (the "double Irish") has helped the books of Facebook and Google but not much else. Actually, the biggest commercial development in the last 20 years was the internet, and that was funded by the US government. Ditto for computers. In both cases, the funding was generous and continuous, due to the Cold War. So yes, lets start raising taxes on corporations. I strongly urge repeal of the automatic deprecation of real estate. The Times just had a long article on how this was the one exception to the elimination of such measured in the Trump Tax Cut. It greatly helped Jared Kuschner and the Trumps. But that was jsut a coincidence--right?
50
Thanks for this column, Dr Krugman.
So does it mean that raising taxes on rich Americans, say top 5%, and raising taxes somewhat on corporations (or just removing the infinite number of their loopholes), and spending these money on investing in America, say R&D, infrastructure, green energy, education, you name it, would be a vastly better way of not only addressing our needs but also to stimulate the econmy?
150
@CarolinaJoe
Yes. We can't raise enough money to do everything we want just by taxing the rich, but rolling back the high-end tax cuts of the past 20 years and spending more on long-term investments would be a much better use of the money.
145
@CarolinaJoe. Corporations have a Corporate Charter with bylaws that require that corporation to dispense excess profits to the owners (stockholders) of that company, meaning they cannot just amass large stockpiles of cash indefinitely. That means companies with large profits must either invest (spend to expand, upgrade, etc.), buyback stock, or increase their dividends. The large corporate tax cut along with already very strong corporate earnings means that companies are doing al lot of all of it. Many corporations are not only buying back stock, but also increasing dividends and investing as well. Unfortunately a lot of that investing is happening overseas.
@Paul Krugman
The beauty of the Republican tax-cut/stimulus lie is that it makes sense to working class folks: if they get extra money, they spend it. In other words, capitalism works as it should in that case.
With corporations and the super-wealthy, however, that doesn't apply, as we now know from Reagan, through the Bushes, and now, initially, with Trump (with a significant detour through the governorship of Kansas, as well).
The lie, unfortunately, lives on, unaffected by multiple stakes sticking in its heart.
10
Doesn't everything with the DJT fingerprint on it "fizzle"?
42
The problem with lying about everything is, people think you are lying about everything. Credit goes to the whole Republican party, not just Trump. Our hearts and prayers go out to our working class Republicans. Wake up.
106
Another on point PK column.
Makes me very glad we're not facing Brexit. We are screwed up; Britain doubly so.
35
It seems to me that the economy is all about supply and demand. When inflation is high it means that the demand exceeds the supply. At times of high inflation, giving a tax cut to corporations encourages them to expand their business to meet the demand. However when inflation is low it means that the supply is grater than the demand. At times of low inflation, giving corporations a tax cut increases their profits, but because demand is low, there is no incentive for them to expand their business to make more products. Bottom line, the tax cut was a dumb idea, which will only increase the budget deficit and cause all kinds of unnecessary problems down the road.
7
@W.A. Spitzer, when inflation is high (following your line of thought) demand is high, so there is no need or use in cutting corporate taxes. They will invest to meet the demand, borrowing if necessary (and when inflation is high, even though interest rates are high, borrowing in nominal dollars for future gain can be cheap). When the demand is low, they will not invest to meet that nonexistent high demand; tax rates make no difference. That is what backs up Krugman's point.
7
@Thomas Zaslavsky ....I get your point, but I still think that when profits increase (tax cut) and demand is high the corporations are much more likely to use the extra money to expand than when demand is low. Also when inflation is high, interest rates are also high (Fed) and a business runs the risk of becoming over extended. In the 80's, many farms went under because they couldn't pay off their high interest rates.
2
@W.A. Spitzer
I think we agree that demand is necessary to spur investment. I don't think the increased profits for a good business would make a huge difference.
As for interest rates, you have a valid point. Borrowing at a high rate during inflation will be a liability if the inflation stops and one can't refinance. I'm not sure how that affected farms. I'm not denying the harm done. Farms, or rather small farms' failures, are a problem that needs separate attention.
1
There's something about purposely mushrooming our debt and all the subsequent interest payments that annoys the brain. And how Donald Trump acts like it was a superb initiative when it was not. Or how Mitch McConnell expects us to face the inevitable music with threats to the safety net. Welcome to crippling debt, next generation. Democrats didn't want this shameless tax heist.
43
Trump doesn't understand money except for payoffs in a brown bag so I never expected those tax cuts to do anything anyway, but the other republicans are going to be tied to that scam a lot more than he is.
We're going to make certain that people remember Mitch, can't afford entitlements anymore, McConnell.
And the Tea Party? They were nothing but shills for the Koch Bros in the 1st place. When the recession hits we're going to have to toss those tax cuts out the window just to make interest payments on the money the Republicans squandered on corporations and the 1%.
This time, when Democrats bail out the economy again we will demand health care, education, a clean environment, and free education. No excuses!
98
@lightscientist66
And to pay for it, they will raise taxes on the rich, Obama did it, and the republicans McConnell said, he will deepen the recession, it didn't. But cut taxes for the rich and corporations has been the republican battle cry since the 1920s..... even exceedingly high personal tax rates on the rich 80% is absurd, 75% is okay, I can live with that....but you want new roads, bridges, education, healthcare, all that needs to be paid for.
It's disingenuous for anyone to assume that healthcare is gratis, nothing in this world is gratis. It all has to be paid for, and we all have to pay taxes, shifting those taxes to working class, isn't appropriate, unless your a republican.
If the public wants access to healthcare, and not have insurance companies in the middle driving these costs to produce profits for their shareholders, the public should be willing to pay a either a federal sales tax, or an added payroll tax, meaning a separate box on your W-2.
A sales tax would be better it would be much lower than an added payroll tax, because more people would be paying into it. Those on Social Security, would be able to keep their monthly premium that is taken out of their checks. Nothing is free, somewhere, somehow, we all must pay for healthcare, either via an insurance premium, or a federal sales tax, I would rather pay a sales tax not ever have to worry about a huge hospital bill.
Nothing is gratis, nothing, and we shouldn't be so dumb as to think it is.
6
@James Young
Sales taxes, except on luxury goods, hurt the poor and working class. If you can eliminate sales tax on food, medicine, utilities and other necessities, maybe ok. Paying a higher sales tax on big ticket items like a new car is not so bad either.
There is absolutely nothing wrong with a marginal tax rate of 92% on the wealthy.
6
@James Young
Healthcare is 17% of GDP. It ranges between10-12% in every European country.
It is not necessary to raise taxes to pay for healthcare. Rather the problem is how to distribute the savings generated by the transition from the grossly inefficient for-profit private bureaucracies to a far more efficient public medicare-for-all government bureaucracy.
4
Krugman's on-point, as usual. The rich are drowning in carrots, and have been since Reagan. Can we finally show them the stick?
73
Krugman is spot on as usual; from my years seeing business decisions get made, taxes are rarely a big decision factor, nor should they be except in rare circumstances where by some circumstance they do actually become a big factor in profitability. The GOP tax cut during an economic expansion was absurd, as is the hypocrisy of the GOP regarding deficits and balanced budgets being important to them - if so, they would have increased taxes enough to pay for the "War on Terror" instead of using deficit spending for that, and done a lot of other things differently. Regarding deficits it is clear that GOP stands for Grand Ol' Pretenders.
19
The deficit is UP by 17% under Trump. You call it a "fizzle...it's a disaster for future generations.
31
@BlueHaven....I wish what you say were true. However the budget deficit in 2016 was 587 billion and in 2018 it is 782 billion. The math say that is a 33% increase in the budget deficit in two years of Trump.
5
Professor Krugman, you aren't saying that the corporations are scamming the government, are you? How dare they. I can't imagine that they would do such a thing. Aren't they all fine, upstanding citizens of the world? And they are citizens, at least according to the SCOTUS.
We all know that the only thing that most of these companies look at is the bottom line, both corporate and that of the CEOs and other higher-ups. And that has shown itself in the total lack of investment by these companies. The Trickle Down theory has been proven wrong yet again. Demand is not created from above by production, it is created from below by demand. But to get any RepubliCON to recognize this would mean they have sworn off the Church of Ronnie.
18
@BigFootMN Indeed, one of my coworkers said "stelaing from the government is not considered a crime". In this sense, Rick Scott (FL) is an upstanding businessman who sadly had to pay $300 million in fines for Medicare fraud.
6
The tax cut politically may have been a fizzle but in the meantime the nations finances have been placed in real peril. Will the Dems fix it?
6
@caljn, will you vote for Dems when they take the inevitable step of raising taxes (on the very rich, both people and "persons") and the GOPs denounce them once again?
9
The proof is in the pudding. And the political proof is In Kansas. Brownbacks’ “ real live experiment “ was, and IS, a real Life Disaster. And all except Trumps most deluded fans understand that. It will probably take 15 to 20 years for this State to return to the baseline. Lost years, and lost lives.
Thanks, GOP.
434
@Phyliss Dalmatian
A democrat won Kansas so change is in the air...
19
@James Young
Mm-hmm. Like Phyliss said, 15 to 20 years.
18
Come on now my tax last laughed really loud when I asked how much I was in line for. $16/month is no laughing matter...
7
@JB
Two Big Macs and a coke?
3
@JB
You're right it's no laughing matter, it hilarious....it should be a crime.
1
@JB I figure $76 a month for my family. 2/3 of a pound of beans a day.
To paraphrase Grover Norquist, my hope is that the Republican party will shrink to the point where we can drown it in the bathtub.
171
@LLP I think Grover was at Dennis Hof's birthday party at the brothel in Nevada before Dennis died. Party of moral values etc etc.
10
This column concentrates on strong simple subjects backed up by examples, which dispute Republican orthodoxy. Worth working through.
12
Dr. Krugman, you would have saved lots of ink by simply writing this:
“Republicans took office with the express purpose of hosing the rest of us.”
“Republicans have always been about balancing the national budget; “fiscal responsibility,” one of their “consistency is the hobgoblin of small minds” ruses, is merely the other side of the us vs. them coin: savers vs. spenders.”
“Republicans fiercely campaign for a strong military not to protect America and its allies and other international interests abroad but to protect their own investments—here and abroad.” How no one can understand this had always puzzled me.
“Republicans have a way of demonizing the public good (infrastructure investment; paying for quality education; Medicare; Medicaid; Social Security, e.g.,) because it conflicts with their interest in sawing off the social safety net. It’s un-American, they whine, while diverting public money (taxpayers money) to private use.”
Well, Dr. Krugman, how many ways is it possible to say “Republicans live to rip us off?”
38
@Red Sox, '04, '07, '13, ‘18. Evidently, Sox, some people need more repetitions of evidence than others. I’ve often found that to be true in the classroom, but I always hope that when it came to one’s pocketbook it would take fewer repetitions.
2
Trump's tav cut was a crowd pleaser. Its just a really, really, small, wealthy, privileged crowd.
23
And ... it blew a hole in our debt several hundred billion wide - with no end in sight. No surprise - McConnell's response is that we have to cut Medicare & Social Security.
24
It's been said before but it is worth repeating. The tax cut was a great success for the people who promoted it and paid for it. The justification is just a sop for those few who pretend to enjoy logic, and it fills up space when you have to make up a less than truthful response to questions.
The other rationale for the tax cut was to work hard to bring the United States back to the 18th Century, a time dear to the hearts of the rich entitled and certain ideologues.
13
"it’s difficult to get politicians to understand something when their campaign contributions depend on their not understanding it."
True, but this assumes they don't understand what they're doing. They clearly know exactly what they're doing and it's working out exactly as planned.
The GOP strategy (and that of their Libertarian funders) is twofold: shrink government spending on the unwashed masses, and cut taxes and regulations so the rich can be unimpeded in expanding their wealth. Driving up the deficit through massive tax cuts for the rich serves both purposes.
The problem isn't a lack of understanding by the pol, but that they've been so effective at lying to their gullible base for decades, and (especially recently) red-baiting anyone who points out that the GOP has been waging a class war on the 99%.
23
@Rich, a crucial observation, well summarized.
6
The Trump tax cut stimulated the stock market through corporate stock buy-backs and to a lesser extent the gig economy of low wage service jobs. Increase in production of goods and services was minimal and short-term. It was a transfer of wealth from us, who will pay off the increased national debt through cuts in social services, to the corporate oligarchy Trump serves. Paul Ryan urged Trump to push an upbeat midterm campaign on the economy, but Trump understood his base wasn’t benefitting, and stuck with playing white racial anxiety over the brown caravan.
8
And we enter the future certain in the knowledge that 'Nothing is as it appears to be' guiding our thinking, politics, well-being, wallets and decision making. Bureaucrats and politicians have given us a future filled with nostalgia ( Nod to Svetlana Boym) for a Utopian time that never was. It's one thing to be optimistic and hopeful - it's quite another to wallow in Presidential fantasies of standing under waterfalls of cash and unchallenged global superiority. Trump's corporate tax cuts combined with accounting alchemy is an illusion Penn and Teller would be proud of when it comes to disappearing benefits. Lights flash, balloons burst, tinsel and confetti fall from above and the conjurer exits stage left - with him richer and us poorer.
13
@Tom Storm. That’s WINNING!
3
The U.S. deficit rose to $100.5 billion an increase of about 60 percent from a year earlier due to the tax cut. There is no magic. There is no economic philosophy. There is only greed.
253
@Renecalvo. If I get that junk mail from a credit card company where I can write myself a fat check against my credit card, will that make me richer? Indeed it will (if someone else is paying down my balance.). So Trump writes himself and the 1% a big fat check against the US deficit, and the 99% are stuck paying it down. It’s a simple and obvious trick, but evidently too sophisticated for idiot Trump supporters to understand. Republicans under treat the US economy like an investor for a Trump casino in Atlantic. Take the money, declare bankruptcy, and move on to the next scam.
28
I for one have investigated projects where the after tax returns - be they 8% or 11% will be sensitive to the tax rate. With 11% being a go and 8% being a no.
Krugman's argument about corporate investment being independent of the tax rate because most projects are short-lived - that holds for interest rates and high payoff projects but not for projects in competitive markets where your bid prices are already beaten down by the competition.
It sounds like most of the investment he's thinking about is replacing obsolete equipment (old computers) - that isn't really capital investment anyway. It's stuff you have to do so your whole operation doesn't grind to a halt.
His point that the tax rate doesn't matter that much because most of the profits were already being transferred to a low-tax jurisdiction - it's interesting. Does he have data on this, or does anyone? It would be helpful
1
Since Trump's ignorance is truly vast
Legislation our Warlock has passed,
Isn't his, it's contrived,
From Koch minions derived,
And Mitch McConnell heads the cast.
26
"There aren’t many [?] potential business investments that will be worth doing with a 21 percent profits tax, the current rate, but weren’t worth doing at 35 percent, the rate before the Trump tax cut."
Why the weasel-word "many"? The rate of the profits tax has no impact on project choice. With the income skimmed by privileged insiders accounted for as "costs," what is reported as profit is pure gravy.
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I'll leave it to Krugman and other experts to explain all the reasons that tax breaks for individuals and companies needing them least is as senseless as it sounds, but make no mistake, we were warned: Not a single surviving member of the President's Council of Economic Advisers supported Trump during the election, and the red state simpletons who ignored their opinions then will go on ignoring them, just as they ignore any and all glaring evidence of Republicans' corruptness.
An International Consortium of Investigative Journalists has uncovered evidence of many thousands of research papers that were published in online journals that never reviewed them, and citing the obvious conflict of interest between paying to publish and objectivity in the peer-review process, American librarian Jeffrey Beall published lists of dubious journals and publishers from 2008 to 2017, when he was pressured by his employer to cease publishing them – sordid details are provided in this article, written by Beall and published by the NIH: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5493177/
I've been busy working on a paper related to these sham journals, which range in scope from religion and the arts to scientific – if voters are ever to be well-informed on economics or anything else, one of the first steps will be discrediting bogus research, and shutting down publishers and other scam artists who are selling lies to the public and laughing all the way to the bank about it.
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@Gary Henscheid
Most voters do not read scientific journals. Their sources of information are the popular media, facebook, etc. Those who do read scientific journals are more likely to be able to discern the quality of the publication.
The bigger problem is that many voters express strong opinions about topics that they have not researched.
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@DM - your point is well-taken, and I'm not sure how many educators read academic journals either, but if our scholars and educators are wrongly or poorly informed, what hope is there for the rest of society?
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@DM _ I failed to address your second point about academics being able to discern the quality of publications. I have to get to Tokyo to teach two classes this afternoon, but for now, let's just say that the problem with many academics today is not lack of discernment, but pressure to publish and lack of principles and ethics.
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Republican want to give their donors big tax cuts. They will make up any economic theory that justifies such things. Meanwhile, Trump promises a new 10% tax cut to his "base" at his pre-election rallies, and for some strange reason they believe him. Surprise! the 10% tax cut proposal disappeared on Nov 7.
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@tanstaafl The 10% tax cut is hiding out with Trump's "beautiful healthcare plan that is better and cheaper than Obamacare."
We're still waiting, and waiting...
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We have known for a long time that tax cuts such as these would not lead to increased domestic investment. Their principal goal is not to stimulate hiring, raise wages, etc.; why spread the wealth? The goals are to redistribute wealth upward and starve the beast. In that respect, this tax cut hardly fizzled.
It fizzled as an electoral stimulus, however, and that may have surprised Republicans in the class bubble. After all, the middle class and below saw negligible benefits; thanks to the attention of enough media outlets this time around, they knew they were in fact losing deductions and middle-class incentives.
I once read about a big consumer-foods corporation that tried dabbling in a line of esoteric gourmet specialties. The line did not do well and was discontinued after a couple of years. The company's president told of attending a party at which a woman told him, "We love your gourmet foods! We stock the yacht with them!" The president ruefully observed, "That's the problem — not enough yachts."
The tax cut's rising tide may have lifted the yachts, but the dinghies got swamped.
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The last line in this article explains all. It was not a tax cut at all, it was a payback to donors. If it weren't the government doing the giveaway it would be called money laundering. Calling it lower taxes for all just sounds better. In exchange for being silent the Republican base is given conservative judges. It's a Faustian bargain. No one is fooled.
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